Advantage and Disadvantage of Private Company Explained


Running a private limited company is the most popular business process in the corporate world. These companies have full right to issues stocks and have number of shareholders. However, the shares are not traded on public exchange neither initial public offering. A private limited company completely run on the amendments set by Companies Act 2013 and is not less than two or more than 200 members. The liability of these member are limited, transfer of shares is limited and restricted to invite general public. Presently there are certain requirements to run a private limited company:

• Minimum involvement of 2 Directors under sec 149 (3), Companies Act, 2013 who stayed in India for not less than 182 days
• 2 or more shareholders
• Having minimum share capital of Rs 1,00,000
• Digital Signature Certificate for two directors

However, private companies hold some advantages and disadvantages:

Advantage of Private Limited Company:
Limited Liability: This is the biggest benefit any private company can enjoy. In future, if the company goes through financial turmoil, the assets of shareholders and business are protected.
Boosting of Professional Status: As a private limited company, it enjoys a good value in the market. More and more national and international companies show keen interest on doing business. These companies are established and hold credibility in the market.
Continues to Exist: The company continues to run, even if the members die or dissolve it due to loss or certain reasons. In other words, it has perpetual succession and run until it is legally dissolved by the members. This is considered as important characteristics of forming a company.
Separate Legal Entity: The private company is legal entity which is established under companies act. It has wide legal capacity and can own properties without any limitation.
Scope of Expansion: Private companies can raise capital from individuals or investment companies for further expansion.

Disadvantage of Private Limited Company:
Hectic Registration Process and Formalities: The process to register the company is quite consuming and need people with better law practice. Moreover, the company often faces issues post registration while opening the bank account, as the company is considered as unregistered. Once registered, the company need to hold board meeting, accounts audited and number of other process that can be time consuming.
Ownership Division: One of the major disadvantages is the company requires more than two persons to be the shareholder or director. Even if the person holds negligible amount of shareholders, the company need to have two or more shareholders.
Winding up the Company: The procedure to wind up is quite complicated and is a cost affair. So it is better to register a company only if promoters are serious.

Whether the company is private or public, it holds some advantages and disadvantages that need to be bear upon. Having knowledge and seeking expert advice before stepping into company formation is highly advised. For your private company registration related queries and help visit

Author name – SHEELA JOBY
Senior editor
, you could reach her at

Author Name: Higrit