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The greatest Disadvantage of a Private Limited Company is the restriction of making a public issue. Additionally, Costly registration process, Annual Compliance, Restriction in choosing Company Name.
1. Costly registration process
To Open a Private Limited Company it will cost high in comparison with the capital invested. Government fees for incorporating a company including the cost of Digital Signature is more than Rs. 11,000/-
On the other hand, Company needs to fulfil the Government regulations which also incur cost more than Incorporation. Post Incorporation Compliance cost more than 18,000/- annually.
2. Load of procedural formalities
Every Company has Legal formalities like Filing the Annual Returns, Income Tax Filings, Meetings, Records of Meetings, Invitation for the Meetings, Shareholders Meetings, Separate Directors Meetings, etc.
Avoiding the Legal formalities will result in high penalties and even imprisonment of Directors
3. Rule regarding ownership
The company needs to have two shareholders, regardless of the role of the other shareholder. Any major decision concerning the business requires the involvement of both the owners.
Government recently introduces the concept of One Person Company in which only One Person can only be the shareholder of the company.
One Person company can only be operated up to the turnover of Rs. 2 crores and capital of Rs. 50 Lakhs. Then OPC should be converted into another form of Business.
4. Dimension of liability
One of the key disadvantages of a private limited company is that it narrows down the liability to itself. In case of debt, profit or loss the company is wholly liable.
The liability may extend to the owners or members when the matters go beyond the boundary of the company.
For example when the contract or the agreement concerning the company stands faulty on legal grounds or any kind of discrepancy is found regarding the management of the private limited company.
5. Dissolving of company
The process of winding up of the private limited company takes a toll on the budget as it incurs a lot of cost. Not only it is time consuming, it is also quite a complicated affair.
That is why before setting up of a Ltd company the entrepreneurs should consider all options and then make their final move keeping in mind about the future possibilities.
6. Restrictions regarding company name
There are certain rules and regulations that are to be followed while naming a Ltd company, thus lot of care is required to select a name which is in adherence to the law.
Whereas the advantages of a private limited company is concerned, it eases out the burden acquired due to tax as it invites greater flexibility in terms of tax on profits and personal income. It also tags the company with status of being proficient thus increasing the market value of the company.