Role of Private Limited Companies

 AAVANA.IN

Although some large firms are private companies, most private limited companies (Ltds) are small to medium-sized organizations. A private limited company is one that is owned by shareholders who have been approved by the other owners; it is often a family business. A private limited company’s profits are occasionally distributed to its shareholders as dividends, but they are also sometimes reinvested back into the company.

The primary goals of a private limited business are to increase revenue and profit so that shareholders can get a good return on their investment. Many private limited companies will seek to expand their business by opening new locations, producing a greater range of products, or hiring more people. When a company grows large enough, it may decide to “go public” and become a public limited company.

Why are they referred to as limited liability companies?

Limited firms get their name from the fact that their owners have limited liability, which implies that people who invest in the company only risk losing the money they put in. The owners will only lose the money they invested into the company if it goes out of operation, leaving obligations (the value of their shares). The owners will not be forced to sell their personal belongings, such as their home, in order to pay off the company’s debts.

The fundamental benefit of forming a corporation is that it limits your liabilities. Limited firms have a legal personality apart from their stockholders, which allows them to make purchases. Rather than that, it will possess assets, make contracts, and take legal action against other firms in its own name.

Private limited corporations have the following advantages: 

• The owners have limited liability; 
• Additional capital can simply be raised by selling more shares.
• Even if a shareholder dies, the company can continue to trade since the shareholder’s shares are still valid and can be passed on to another person.
• The private limited company has its own legal status, distinct from the public limited corporation. It has the ability to sue and be sued by its shareholders. A private limited company can also be the owner of a property.
• Compared to public limited firms, private limited corporations are less expensive to establish.
• Shareholders must agree to the sale of a private company before it may be taken over.
• Because private limited firms are frequently governed by their large shareholders, there aren’t many regulations.

Private limited firms have the following disadvantages:

• The company must disclose its accounts every year. These are visible to the general public as well as rivals.
• There is a separation of ownership and control; directors are elected to operate the company, which means the owners are no longer in charge of all decisions.
• It may be tough to raise extra funds because finding acceptable new shareholders is challenging, or banks may be hesitant to lend money to small enterprises.