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First, understand the difference between Private Limited Vs. Limited Liability Vs. One Person Company Or search for Business Registration Lawyers.

A company is an incorporated association of persons created by law to carry on the expressly laid down objectives. A company exists on in the contemplation of law. It may be formed by an act of parliament, or by Royal Charter or by registration under the company law. A company has perpetual existence i.e. the existence of a company can only be terminated by law and not by the death, retirement, insanity of its members. A company can be either a private or a public company. In India, there are a multiple types of companies and in one of our previous posts, we have also covered the difference between private limited, limited liability and one person company. This article mainly focuses on the advantages of a private limited company.

Private Company: A private company means a company which:

(a) restricts the right of members to transfer its shares;
(b) has a minimum of 2 and a maximum of 50 members, excluding the present and past employees;
(c) does not invite public to subscribe to its share capital; and
(d) must have a minimum paid up capital of Rs.1 lakh or such higher amount which may be prescribed from time-to-time.
It is necessary for a private company to use the word private limited after its name. If a private company contravenes any of the aforesaid provisions, it ceases to be a private company and loses all the exemptions and privileges to which it is entitled.

The following are some of the privileges and advantages of a private limited company as against a public limited company:

• Members: - A private company can be formed by only two members whereas seven people are needed to form a public company.
• Issue of Prospectus: - There is no need to issue a prospectus as the public is not invited to subscribe to the shares of a private company. Thus, a private company is exempted from complying with the provisions of the Act regarding the issue of the prospectus.
• Exemptions regarding share capital: - restrictions applicable to public companies regarding kinds of share capital, voting rights, and issue of shares with disproportionate voting rights and termination of disproportionate excessive rights do not apply to private companies. Further, a private company can give financial assistance for the purchase of subscription of its own shares or its holding company.
• Minimum Subscription: - Allotment of shares can be done without receiving the minimum subscription.
• Commence of business: - A private company can start business as soon as it receives the certificate of incorporation. The public company, on the other hand, has to wait for the receipt of certificate of commencement before it can start a business.
• Exemptions regarding directors:
  - i. A private company needs to have only two directors as against the minimum of three directors in the case of a public company.
  ii. A private company is not required to appoint independent directors.
  iii. Directors of private companies need not retire by rotation.
  iv. Persons holding an office of profit can be appointed as directors of a company without passing a special resolution.
  v. The provision excluding an interested director from participating in voting at board’s proceedings does not apply to a private company.
  vi. The restriction as to the maximum number of companies of which a person may be appointed as director is 20 in case of private companies and 10 in a public company.
  
• Index of members: - A private company is not required to keep an index of members while the same is necessary in the case of a public company.
• Loan to Directors: - There is no restriction on the amount of loans to directors in a private company. Therefore, there is no need to take permission from the government for granting the same, as is required in the case of a public company
• Exemption regarding managerial remuneration: - The provisions of the Act regarding fixing or increasing the remuneration of managerial personnel of a company are not applicable to private companies.
• Audit committee: - A private company is not required to constitute an audit committee of the Board.
• Minimum paid up capital: - The minimum paid-up capital for a private company is Rs. 1 lakh and for a public company it is Rs. 5 lakhs
• Limited Liability: - The greatest benefit of private limited companies is limited liability. Private limited companies, according to Apex, are treated as a single entity, making the company responsible for all debts. If anything happens to the company, its members are not personally affected; members are only liable for unpaid shares.
• Flexible Relations: A person can act as a shareholder, a director and an employee at the same time when the private limited company is taken into consideration.

Thus, a private company is able to enjoy all the benefits of a joint stock company such as legal entity, perpetual existence, limited liability etc. and on the other hand, it is free from numerous legal restrictions which apply to a public company. This grants it a greater freedom of action than a public company in several aspects.