The following are the advantages of registering private limited company.
In a public company, regulation and ownership of shares can be sold to the public on an open market. On the other hand, in a private company, shares can be sold or transferred to other people by the choice of the owner. Shares of such companies are owned by founders, management, or a group of private investors. Shares here are not sold in the open market. Thus there will be less number of shareholders. This means less complexity and confusion in decision-making and management.
- MINIMUM NUMBER OF SHAREHOLDERS
For a private company, a minimum number of required shareholders is 2, whereas, for a public company, you require a minimum of 7 shareholders.
- LEGAL FORMALITIES
Legal formalities are sometimes very expensive and time-consuming, aren’t they? If you’re planning to start a public company, you better be prepared because there is a long list of legal formalities for forming a public company. Private companies have a comparatively shorter list.
- DISCLOSING INFORMATION
A public company is required to disclose their financial reports to the public every quarter, as it will affect public investment; private companies are not subjected to any such compulsion.
- MANAGEMENT AND DECISION MAKING
Management and decision-making become more complex and confusing in public companies as more number of shareholders is to be consulted. This complex procedure is eliminated in a private company as the number of shareholders is less.
- FOCUS OF MANAGEMENT
Managers of Public companies are focused on increasing the value of shares, whereas managers of the private limited company are more flexible in the short term and long term business decisions.
- STOCK MARKET PRESSURE
Private companies are not pressurized by the stock market and you don’t have to worry about shareholder expectations and interference as long as they work within the law. Shareholders in public companies are focused on current earnings and they exert pressure on the company to increase earnings.
- LONG TERM PLANNING
Managers of public companies are pressurized to increase earnings in the short term in order to increase the value of their stock. Private companies can focus on long-term earnings as such pressure is eliminated.
- MINIMUM SHARE CAPITAL
You will be needing a lot of money for a public company. A public company requires a minimum share capital of Rs. 5,00,000. For a private company, the earlier minimum number of the share capital was Rs. 1,00,000, but now there is no such minimum compulsion. Therefore there is no pressure of fund requirements.
It is obviously not appropriate, for competitors to know about your business secrets. Confidential information such as executive compensation, legal settlements, and other essential information cannot be kept reserved in public companies. Such information is more secure in a private company.