PRIVATE LIMITED LIABILITY COMPANIES, Definition: A private limited liability company is defined as one which by its articles restricts the right to transfer its shares, limits the number of its shareholders from two to fifty, prohibits any invitation to the public to subscribe to its shares, and the name of the private liability company must end with the abbreviation of “Limited”, e.g. Bluebird Nigeria Limited, Godswill Nigeria Limited and News watch Nigeria Limited.
A private limited liability company, often abbreviated as Pvt. Ltd. or Ltd., is a type of business entity that combines the advantages of limited liability protection with the flexibility and operational structure of a private company. It is a commonly used legal structure for businesses in many jurisdictions.
Here are some key characteristics of a private limited liability company:
- Limited Liability: The owners or shareholders of a private limited company have limited liability for the company\’s debts and obligations. This means their personal assets are generally protected if the company faces financial difficulties or legal issues.
- Separate Legal Entity: A private limited company is considered a separate legal entity from its owners. It can enter into contracts, own assets, sue or be sued in its own name.
- Ownership: The ownership of a private limited company is divided into shares. The shareholders own the company based on the number of shares they hold. However, unlike a public limited company, the shares of a private limited company cannot be freely traded on the stock exchange.
- Number of Shareholders: Generally, a private limited company requires a minimum of two shareholders and can have a maximum of 200 shareholders. This restriction helps maintain the private nature of the company.
- Management: The day-to-day operations and management of a private limited company are typically handled by directors appointed by the shareholders. Shareholders\’ roles are usually limited to voting on significant company matters, such as major business decisions or changes to the company\’s structure.
- Financial Reporting: A private limited company is required to maintain proper financial records and file annual financial statements with the relevant authorities. However, the level of reporting and disclosure requirements is generally less burdensome compared to public companies.
- Privacy: One of the main advantages of a private limited company is the privacy it offers. The company\’s financial information, shareholders\’ details, and other sensitive information are usually not publicly available, which can be beneficial for businesses that value confidentiality.
It\’s important to note that the specific regulations and requirements for private limited companies may vary depending on the jurisdiction in which the company is registered. It\’s advisable to consult with a legal or business professional familiar with the local laws and regulations before establishing a private limited liability company.
FEATURES OF PRIVATE LIMITED LIABILITY COMPANIES
- Ownership: The business is owned by shareholders who may be between two and fifty persons in number.
- Objective: The major aim of a private limited company is to make a profit.
- Source of capital: The capital required to set up and run the business is provided by the shareholders in the form of shares. However, shares are not sold to the general public. They are sold privately.
- Liability: The shareholders have limited liability. In the event of liquidation, the amount a shareholder can lose is limited to the frilly paid-up value of his share or the capital he has invested in the business. His personal assets or properties are protected by the law.
- Legal entity: The business is a separate legal entity and is different from the owners of the business. The business can sue or be sued in its own name, without involving the owners.
- Continuity: There is continuity of business operations as the withdrawal or death of a shareholder may not affect the existence of the company.
- Shares are not easily transferable: Shares cannot be resold to other persons except with the consent of other shareholders.
- Management: The private limited company is managed by a board of directors appointed by shareholders.
SOURCES OF FINANCE OR CAPITAL AVAILABLE TO PRIVATE LIMITED COMPANY
- Loans and overdrafts from banks: Loans and overdrafts can be obtained from commercial or development banks.
Shares raised by shareholders: Shares are usually raised by shareholders (owners), which form the capital base of the company.
- Equipment leasing: Equipment can be leased out by companies for money.
- Retained (plough back) profits: The profits made by the company can be set aside or re-invested.
- Trade credit: Raw materials can be purchased by the company on credit.
- Hire purchase: Facilities can be granted to the company to buy and pay in instalments.
ADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY
- Large capital: Private Limited Liability Company can easily raise capital as a result of many shareholders that form the business.
- It has a legal entity: Private Limited Liability Company has legal existence; hence it can sue and be sued in its own name.
- Shareholders have limited liability: In the event of business failure shareholder only loses his shares which he has contributed and his personal properties or assets are
- Continuity of existence: The chances of continuity of existence is high death or withdrawal of a shareholder cannot affect the existence of the company.
- Efficient management: The business is efficiently managed by a board of directors appointed by the shareholder
- Large profits: Private limited liability companies do enjoy large profits because of their large size.
- Possibility of expansion: The bus can easily expand because of the capital available to set up and run
- It enjoys internal economies of scale production: As long as the enterprise is large, production can be carried out on a large scale, economies of production/scale.
DISADVANTAGES OF PRIVATE LIMITED LIABILITY COMPANY
- Limited capital: As a result of a number of shareholders coupled with the fact that shares cannot be sold to the public, the capital available for limited.
- Shares are not sold to public: The private limited company cannot se shares directly to the public. This a limitation to the capital base expansion.
- Shares not easily transferable: A shareholder cannot sell his shares without the consent of other shareholders.
- Lack of privacy: There is a lack of privacy as companies are required to publicise their accounts
- Payment of corporate tax: Private limited companies are usually required to pay corporate tax, unlike personal income paid by sole proprietorship and partnership.
- Lack of personal contact: There is less personal contact with both the employees and customers, unlike in sole proprietorship and partnership.
- Delay in decision making: Before any decision is taken on any crucial matters, the board of directors or the shareholders must meet and this tends to waste a lot of time.