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What is a Private limited Company

What is a Private Limited Company:

A Private Limited Company is a company which can be started and registered by two members. The private company suits the persons who wish  to avail of the merits of limited liability and also keep the business as private as possible. The private limited company is generally a family affair. It shareholders are mostly relatives friends or business associates. The short form of Private Limited Company is (PLC) The main privileges of a private limited company are as follow.

Definition of Private limited Company:

A private limited company has been defined under section 2(28) of the companies ordinance in the following words.

  1. Restricts the rights to transfer its shares if any
  2. Limits the number of its members to 50
  3. Prohibits any invitation to the public to subscribe for the shares if any or term loans of the company.

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Privileges of a Private Limited Company:

  1. It can be formed by 2 members but shall not exceed 50
  2. There are restrictions on filing the ‘prospectus’ or ‘statement’ in lieu of prospectus with the Registrar.
  3. It can start business after registration without obtaining ‘certificate to commerce business’
  4. It is not required to hold statutory meeting and no compulsion to submit statutory report
  5. It must have at least two directors. The maximum numbers of directors are stated in the Article of Association.
  6. Directors can receive a loan without the approval of the government.
  7. For holding a meeting, there should be at least two members to make a quorum.
  8. There are no restrictions as to the payments to be made to the directors and the managerial staff.
  9. It is not required to send the copies of balance sheet and profit and loss account to the Registrar
  10. It is required to use the words (private) limited as the last word of the name.
  11. It cannot be listed are a stock exchange of the country.

Advantages of a Private Limited Company:

The main advantages of a private limited company are as under.

  1. It is a concern frequently of family members who are very well known to each other. The control is generally in the hands of owners of capital.
  2. There is greater flexibility in regard to management and conduct of business
  3. It is not required to hold a statutory meeting or file a statutory report.
  4. A private limited company is not required to have more than two directors
  5. All the members of a private limited company enjoy the facility of limited liability . it has the advantages of a public company and a partnership firm.
  6. A private company can commence business immediately after its incorporation.

Disadvantages of Private limited Company:

The restriction imposed under section 2(25) of the ordinance are regarded disadvantages of the private company as compared with a public company. The restrictions or the disadvantages are as under.

  1. It restricts the rights to transfer share by its articles.
  2. The number of members in a private company cannot exceed 50 in any case
  3. A private company cannot issue prospectus to public nor can file a statement in lieu of prospectus.
  4. The shares cannot be quoted on stock exchange.

How to Convert Private Limited Company to Public Limited Company:

A private company is formed to avail of the advantages of limited liability and the facilities of partnership organization.

According to companies ordinance, 1984 there are two ways by which a private company can become public.

1.(a) according to section 45 of the companies ordinance, a private company to become public shall have to alter its articles. The provision contained in section 2(28) i.e
(i) restricting the right to transfer its shares.
(ii) limiting the number of its members to 50
(iii) prohibiting any invitation to the public to subscribe for nay shares or term loans shall have to be excluded from the Articles.
the date on which the company alters its Articles ceases to be a private company.

(B) the members of a private company within 14 days of the alteration of Articles shall file with the registrar either  a prospectus or a statement in lieu of prospectus.

(c) the numbers of members should also be increased to at least 7.

  1. In case a default is made in altering the articles of the private company , the company shall cease to be entitled to the privileges and exceptions conferred on private companies.

Examples of Private Limited Company: 

List of Private Limited Company:

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About the author

Salman Qureshi

Salman Qureshi is an Accountant by profession & he loves to write on Commerce & Management Sciences Subject to assist Students. Hope you guys will like his effort.

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