Private Limited Company: Definition, Features, Merits & Demerits

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What is Private Limited Company?

Private Limited Company is a form of business organization that is privately owned by a minimum of two and a maximum of fifty members. By its nature of existence, it cannot offer its shares to the public for subscription.

Private Limited Company
Private Limited Company

A private limited company or limited partnership is called a type of commercial partnership where the responsibility of the partners is limited exclusively to the contributed capital.

This circumstance has the benefit that in the event that the company contracts obligations with which it cannot comply, the partners are excluded from responding with their personal assets to settle the debts.

It is important to highlight that in this type of organization the shares of each member of the company are distinguished from those existing in a capital company formed by shares, to the extent that there are legal difficulties for their transfer.

Depending on the country that is taken into account, the participation of partners may encounter different limitations regarding their number.

Each partner has a series of rights depending on his role in the company. Thus, each one has the right to share in the profits; to participate in a part of the patrimony in case of liquidation; to be elected as administrator of the company, as well as to take part in the decisions about its direction; and finally, to have knowledge about the economic situation of the organization.

The deliberation and decision-making body is made up of the general meeting. In this, administrators are appointed or dismissed, statutes are approved or modified, management is monitored, etc. Those in charge of making a call to meet the central board are the same administrators and they will do so within a specified period.

With regard to the administration, the administrators can be several, forming a council, or just one that would contribute with their work individually. Their work will be carried out according to the time stipulated in the statutes. On the other hand, there is no need for them to be members of the company, although the statutes could establish this circumstance as a necessary condition.

The capital stock of the company is made up of the contribution of each of the partners. This will be carried out in the form of money, goods or rights. In the event that the contribution is made in goods and rights, their valuation must be validated by the rest of the partners.

Beyond the differences that a limited company may have depending on the country considered, the truth is that it is one of the most common legal forms for the establishment of a commercial organization. The limitation with respect to the obligations of the partners avoids the taking of unnecessary risks and contributes to the generation of trust.

Features of Private Limited Company

  • It should have a minimum of two and a maximum of fifty members in Nigeria.
  • It is restricted from transferring its shares from one person to another.
  • It is not permitted to raise capital by public, subscription.
  • It is not obliged to publicize its balance sheet annually.

Characteristics of the Limited Company

The main characteristics of a limited company include:

The main bodies that make up this type of company are the Administration and the General Meeting. In other words, they have a structure quite similar to that of public limited companies.

In this sense, an important characteristic of limited liability companies is that here the partners are not personally liable for the debts that the company may face.

In other words, in the event of a problem with the operation of the company and the emergence of possible debts, the personal assets of the partners should not be compromised. That is why in the economy this type of society is quite abundant and characteristic of medium and small companies (SMEs).

Advantages of Private Limited Company

  • Close relationship among members assure; successful business enterprise.
  • It is capable of raising large capital through the pooling of resources of members.
  • It can protect itselffrom undue publicity.
  • It is not compelled to publish its annual balance sheet.
  • Liabilities of members are limited to their financial contributions to the running of the business.

Disadvantages of Private Limited Company

  • Limited capital due to the restriction of membership to a maximum of fifty.
  • Transfer of shares is subject to the concurrent approval of all members.
  • It cannot raise capital through public subscription.
  • It is subject to double taxation.
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