A Private Limited Company (PLC) is a voluntary association registered under the Companies Act, 2013 or any other previous company law. A PLC is the best option if you are planning it bigger. Earlier, the required minimum paid-up capital was 1 Lac for the formation of a PLC, but, as per the 2015 amendment in Companies Act, 2013 no minimum paid-up capital is required. Now it is more convenient for a businessperson to start a Private Limited Company.
Advantages of Private Limited Company Registration
A member is not personally liable for the debt and liabilities of the Private Limited Company. The Liability of a member is only limited to the share subscribed by him at the time of winding up.
Separate Legal entity
A Private Limited Company is a juristic person in the eyes of the law. It can acquire, hold, and alienate property in its name. It is an artificial separate legal entity. It can sue and can be sued in its name. A company can enter into a contract in its name through its members. Earlier, a company’s common seal was considered as its signature, but after the 2015 amendment, the common seal is not mandatory but optional.
Conducts business through a natural person
A Private Limited Company, though an artificial person, does its business through a natural person. The affairs of a company are managed by the Directors, Top-level managers, MD and the employees of the Company. Therefore, in the case of fraud, misrepresentation in documents, the person responsible for it is liable. For instance, a promoter is liable for misrepresentation in the prospectus. It is called lifting of the corporate veil. Thus, even though it is a separate legal entity, the person liable for the fraud, misrepresentation, a mistake is held accountable.
Unlike a partnership, a Private Company does not come to an end even if the members die and becomes insolvent. It continues to survive unless dissolved by legally or voluntarily.
A PLC can get funds by issuing shares, debentures, stock. A Private Limited Company can issue secured as well as unsecured debentures. It can also accept deposits from the public. It is easier to get loans from financial institutions.
Loan to Directors
- Now a PLC can advance loan or security/ guarantee to its Directors provided that;
- Such a company should not have body corporate as a shareholder and;
- It should not have borrowed money from any financial institution or bank or any other organization corporate, exceeding twice its paid-up capital or 50 Cr whichever is less and;
- No repayment default by such Company.
Conversion of an LLP into PLC
If you are planning for long-run business and want to build up huge capital resource, want to conduct business at large-scale, in such case, a small enterprise, an LLP can be easily converted into a Private Company. A PLC can also be converted into a Public Limited Company as well and vice versa.
Transfer of share-
Shareholders are the owners of the Private Limited Company. A shareholder can transfer its share subject to the alteration in AOA.