Private limited company
A company whose shareholders are offered limited liability. However, ownership restrictions are strictly in place to avoid the hostile takeover attempt by any association or bylaws. The restrictions include
(1) The sale or transfer of a shareholder's share must be first offered to the other shareholders
(2) The shareholders cannot sell their shares on the stock exchange to the public,
(3) A fixed number of individuals are considered to be shareholders.
Board of Directors
Public limited companies are headed by a board of directors. Composition of the board of directors is set out in the company's articles of association. Normally it comprises of a minimum number of two members and a maximum of 12. These are elected from the shareholders by the shareholders during the annual general meeting. They act as the representatives of the shareholders in the management of the company.
Shareholder liability for the losses of the company is limited to their share contribution only. This is what makes it a separate legal entity from its shareholders. The business can be sued on its own and not involve its shareholders. The company does not belong to any person since one person can own only a part of it.
Number of Members
A public limited company has a minimum number of seven shareholders or members and a limitless number of members. It can have as many shareholders as its share capital can accommodate.
Shares of a public limited company are bought and sold in a stock exchange market. They are freely transferable between its members and people trading in the stock exchange.
A public limited company is not affected by death of one of its shareholders, but her shares are transferred to the next of kin and the company continues to run its business as usual. In the case of a director's death, an election is held to replace the deceased director.
Public limited companies are strictly regulated and are required by law to publish their complete financial statements annually. This ensures that they reveal their true financial position to their owners and to potential investors so that they can determine the true worth of its shares.
Public limited companies enjoy an increased ability to raise capital since they can issue shares to the public through the stock market. They can also raise additional capital by issuing debentures and bonds through the same market from the public. Debentures and bonds are unsecured debts issued to a company on the strength of its integrity and financial performance.
Private Limited Company Characteristics
The major features/characteristics of such companies are as follows.
- It can be formed by two members but the number of member limit shall not exceed 50.
- There are restrictions on filling the prospectus of statement in lieu of prospectus with the register.
- It can begin business after registration without requiring any certificate.
- Statuary meeting is not required as well as not to submit statuary report.
- The number of director at least should be two in numbers. However the maximum numbers of directors are mentioned in the Articles of Association.
- Without any prior approval of the government, directors of a company can easily receive loan.
- It is necessary that there should be at least two members in a meeting to make a quorum.
- The payments are made to the directors and the management staff are required no restrictions.
- The financial report i.e. balance sheet and profit and loss were not require to send the copies account to the registrar.
- The word (Private) limited is compulsory to use as the last word of the name.
- It cannot be listed on stock exchange of the country.
Advantages of a private limited company
The major advantages of these are as follow:-
- One of the advantages of private limited company is that members are well known to each other; however control is in the hands of owners of capital.
- In the management of affairs and conduct of business is greater flexibility.
- Statuary meeting is not required as well as submitting of a statuary report.
- The number of directors in a private limited company is at least two.
- One of the advantages of private limited company is that its limited liability, due to which every members enjoy this facility. It has the advantage of a public company and a partnership firm.
- A private company after receiving certificate of incorporation start business immediately.
Disadvantages of a private limited company
The disadvantages of these companies under section 2 (25) of the Company Ordinance 1984 are as under:-
- One of the disadvantages of private limited company is that it restricts transferability of shares by its articles.
- In a private limited company the number of members in any case cannot exceed 50.
- Another disadvantage of private limited company is that it cannot issue prospectus to general public.
- In stock exchange shares cannot be quoted.