There has been a general confusion about whether to have the status of their company as private or public. It basically depends on the requirement it needs to be. Notably, many companies prefer it to be private considering the kind of privileges they enjoy being private. Brief list of concessions and privileges which favour formation of private limited companies are as under;
- Limited liability,
- Simple and easy formation,
- Immediate commencement of business upon incorporation,
- Liberal payment of remuneration and loans to directors without any restrictions,
- Easier inter-corporate loans
- Lesser disclosure requirements
- Tremendous ease in operation
- Two directors are enough
- Two Shareholders are adequate
- Need not declare dividend
- Listing of shares not mandatory
- Directors need not hold qualification shares
These continue to be the dominating factors for carrying on trade and industry through the medium of private limited companies.
Nevertheless, there are limitations too. Under the Companies Act, a private limited company is:
- prohibited to issue any invitation to the public to subscribe to any shares or in debentures of the company
- to limit the number of its members to 50
- to restrict the right of its members to transfer shares.
- restrained from inviting public deposits (however, a number of companies have managed to obtain public deposits from the relatives and friends of the directors/members)
Thus, private limited companies are run mostly as family concerns without any direct involvement of the public in their activities. However, in spite of the restrictions in the matter of raising finance through issue of shares / debentures, many private limited companies have been managing large projects and have huge turnover.
The Corporate personality of the private companies also enables them the freedom to enjoy the facility of institutional finance, and proven fact that they being managed like a family concern do not stand in the way of their benefiting from the public companies.