Why choose a private limited company?

Private Limited Company can be right choice for you

 

When you hear the word “private limited company”, you often get a thought that private company means small company with little interest. Well, that’s not true. The biggest companies of India, like Infosys, Reliance industries, Wipro Ltd. Etc are private companies.

10 Reasons to choose private limited company over other business formation

  1. OWNERSHIP

In a public company, regulation and ownership of shares can be sold to public on open market. On the other hand, private company, shares can be sold or transferred to other people by the choice of owner. Shares of such company are owned by founders, management or a group of private investors. Shares here are not sold in open market. Thus there will be less no. of shareholders, this means less complexity and confusion in decision making and management.

  1. MINIMUM NUMBER OF SHAREHOLDERS

For a private company, minimum number of required shareholders is 2, whereas, for a public company, you require a minimum of 7 shareholders.

  1. LEGAL FORMALITIES

Sometime legal formalities can be very expensive and time consuming, aren’t they?  If you’re planning to start a public company, you better be prepared because there is a long list of legal formalities for forming a public company. Private limited companies have comparatively shorter list.

  1. DISCLOSING INFORMATION

Public company is required to disclose their financial reports to public every quarter, as it will affect public investment; private companies are not subjected to any such compulsion.

  1. MANAGEMENT AND DECISION MAKING

Management and Decision making becomes more complex and confusing in public companies as more no. of shareholders are to be consulted. This complex procedure is eliminated in private company as the no. of shareholders is less.

 

  1. FOCUS OF MANAGEMENT

Mangers of public company are focused on increasing the value of shares, whereas managers of private company are more flexible in short term and long term business decisions.

  1. STOCK MARKET PRESSURE

Private limited companies are not pressurised by stock market and it don’t have to worry about shareholder expectations and interference as long as they work within law. Shareholders in public companies are focused on current earnings and they exert pressure on the company to increase earnings.

  1. LONG TERM PLANNING

Managers of public companies are pressurized to increase earnings in the short term in order to increase the value of their stock. Private companies can focus on long term earnings as such pressure is eliminated.

  1. MINIMUM SHARE CAPITAL

You will need a lot of money for a public company. A public company is required minimum share capital of Rs.5, 00,000. For a private company, earlier minimum number of share capital was Rs.1, 00,000. Therefore there is no pressure of fund requirements.

 

  1. CONFIDENTION

It is obviously not appropriate, for competitors to know about your business secrets.

Confidential information such as executive compensation, legal settlements and other sensitive information cannot be kept confidential in public companies. Such information is more secure in private company.

So therefore, a Private Company is less complicated as compared to public company. It is comparatively less expensive and less time consuming.

Choice between private and public company totally depends on situation. However, private limited company registration will be preferred over other form should be more preferable

Why choose a private limited company?
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2016-10-21T10:11:32+00:00

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