What is a Private Limited Company?

A PLC is among the most successful and popular business models. In a typical PLC, the owners hold or own all the company’s shares in private capacity. Shareholders have the option of either operating the business themselves, or hiring a board of directors to run the company.

There are several advantages of forming a PLC. Personal assets of the owners can easily be protected under this form of business. Other benefits of forming a PLC include: access to resources, greater tax cuts as well as access to financial assistance.

Limited Liability

This is one of the advantages of forming a Private Limited Company. The law regards it as an independent entity. For this reason, the company is responsible for settling all debts.

In case something unfortunate befalls the company, you or any other member won’t be personally affected.

As a member, you will only be liable for shares that remain unpaid.

Any officer of a PLC can retain their salary or form another company. If the company is declared bankrupt, an officer won’t necessarily have to go down with it.

Unlimited liability is only applicable in the case of fraudulent activities. If creditors lose their hard-earned money through fraud perpetrated by a director, that director’s personal liability becomes unlimited.

Members

To establish a Private Limited Company, a minimum and maximum of two and two hundred members (respectively) must come together. However, there are certain types of business that may be exempted from this rule.

Index of Members

A PLC does not have to keep an accurate and updated index of all members, whereas a public company is legally required to keep an index of all members.

Paid up Capital

In India, a PLC must have paid up capital of at least Rs 1 lakh. The requirement is also applicable in other jurisdictions, although the amount of paid up capital greatly varies.

Business Continuity

PLCs generally enjoy perpetual succession given that the company is a distinct legal entity on its own. The company’s employees and shareholders simply act as its agents. For this reason, the company is not affected if any employee or shareholder decides to leave.

In case a member resigns or dies, the Articles of Association allow the allocation of that member’s shares to others.

The company’s life goes on as usual even when a member dies, becomes bankrupt or is declared insolvent.

Liquidation is the only process that can put an end to the company’s life.

Business continuity benefits members of the company and also ensures that the employees’ jobs remain secure.

Tax Benefits

PLCs enjoy limited liability as well as several tax advantages. They have the legal obligation of paying their fair share of corporate taxes. Nonetheless, they are exempted from paying higher rates on personal income.

Unlike sole proprietorships and partnerships, PLCs enjoy a number of tax deductible costs as well as allowances that can be redeemed against profits.

Finance and Resources

If there’s need for additional resources or production to be carried out on a larger scale, establishing a PLC effectively safeguards the lenders’ interests in the enterprise.

With sufficient funds, the company can minimize production costs. As a result, customer satisfaction and profits effectively increase. Additionally, the company’s future becomes more certain and brighter.

According to business management experts, PLCs have the tendency of retaining substantial funds internally to meet financial commitments, and this plays an important role in enabling the companies grow at faster rates.