Private Limited Company can be a right choice for you
When you hear the word “private limited company”, you often get a thought that a private company means a small company with little interest. Well, that’s not true. The biggest companies in India, like Infosys, Reliance Industries, Wipro Ltd. Etc are private companies.
10 Reasons to choose the private limited company over other business formation
In a public company, regulation and ownership of shares can be sold to the public on an open market. On the other hand, private limited company, shares can be sold or transferred to other people by the choice of the 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.
MINIMUM NUMBER OF SHAREHOLDERS
For a private company, the minimum number of required shareholders is 2, whereas, for a public company, you require a minimum of 7 shareholders.
Sometimes 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.
A public company is required to disclose their financial reports to the public every quarter, as it will affect public investment; private companies are not subjected to any such compulsion.
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 a private company as the no. of shareholders is less.
FOCUS OF MANAGEMENT
Managers of a public company are focused on increasing the value of shares, whereas managers of the private company are more flexible in the short term and long term business decisions.
STOCK MARKET PRESSURE
Private limited companies are not pressurized by the stock market and it doesn’t have to worry about shareholder expectations and interference as long as they work in law. Shareholders in public companies are focused on current earnings and they exert pressure on the company to increase earnings.
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.
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.
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 a private company.
So, therefore, a Private Company is less complicated as compared to the public company. It is comparatively less expensive and less time-consuming.
The choice between private and public company totally depends on the situation. However, private limited company registration is preferred more over other forms of companies.