The Definition of a Private limited company is a type of company, usually small, that does not issue shares to the public. The company’s name is usually followed by ‘Ltd’, short for ‘Limited’.
There are two different kinds of private limited companies.
A private limited company is a company that can either be limited by shares or by guarantee:
Private company limited by shares:
The company is owned by shareholders. The liability of each shareholder is limited to the original value of the shares issued to them.
Private company limited by guarantee:
When a company is limited by guarantee, it has members who act as its guarantors. These members contribute a previously agreed amount to support the company in times of trouble.
When setting up your business it’s a good idea to look well into the future to decide where you want to be and where you wish to take your business. If you’re looking to grow your business, this legal structure will help you to share the load and eventually, as the company is a separate legal entity, you could even take a back seat.
But there’s much more to gain from setting up as a private limited company, and while there’s more administration to set up, opting for the help of a formations agent can make it quick, easy and cheaper than you think.
Advantages of a private limited company
You business will become a separate legal entity. This means that if something goes wrong, for example, you get sued or you cant pay your debts, you won’t be personally liable – financially or legally. The debt is tied to the company so you all your personal assets, such as saving, home and car will be safe.
Sharing the work
With the ability to bring many more people into the mix you’ll be able to benefit from others’ expertise and skills, helping you to keep a clear head for business. Setting up as a limited company also makes it less personal when it comes to running your company, as you can share the responsibilities with others much more easily.
As well as limiting your personal liability, you’ll also find there are tax benefits. With the company paying Corporation Tax on taxable profits, you may be protected from higher income tax rates yourself. You can also pay yourself in dividends if the company is in profit, which has a lower tax rate than income tax.
A private limited company also has the advantage of more tax-deductible allowances and costs, which are redeemable against profit.
Disadvantages of a private limited company
Many see the paperwork involved with setting up and running a private limited company as a barrier to getting started. There’s certainly a lot to consider when setting up, However, much of the hassle can be removed when you use a formations agent to help.
The financial information you need to file is more complex when you’re registered as a limited company. However, this information can also help you to keep a keen eye on your company’s productivity and profitability. And your accounts don’t need to cost the earth to get right.
The profits of a limited company are distributed among shareholders or channelled back into the business. Many companies benefit from this and with investment from profits may grow more successfully.
Rights and Duties of Directors of the Company
Rights/Powers and Duties of Directors under the Ordinance:
Section 86: Further issue of Capital:
The decision to increase the capital of the company by the issue of further shares lies with the directors of such company. With respect to further issue of shares, if existing members decline or do not subscribe to the offer of new shares, the directors have the power to allot and issue such shares in such manner as they deem fit.
Directors (or an officer authorized by the directors) are to sign the circular which is to accompany any offer of new shares under this section.
Section 159: Calling of Extraordinary General Meeting
An extra ordinary general meeting may be called at any time by the directors for consideration of any matter requiring approval of the company in a general meeting.
Section 174: First Directors
The first directors have the right to hold office until the election of directors in the first annual general meeting.
Section 195: Loans to Directors
The Directors of the company have the right to obtain loan from the company subject to fulfillment of certain requirements.
Section 196: Powers of Directors with regard to managing the business of the company
The business of a company is managed by the directors, who may pay all expenses incurred in promoting and registering the company, and may exercise all such powers of the company as are not by this Ordinance, or by the articles, or by a special resolution, required to be exercised by the company in general meeting.
The directors of a company exercise the following powers on behalf of the company, and do so by means of a resolution passed at their meeting, namely:
- To make calls on shareholders in respect of moneys unpaid on their shares;
- To issue shares;
- To issue debentures or any instrument in the nature of redeemable capital;
- To borrow moneys otherwise than on debentures;
- To invest the funds of the company;
- To make loans;
- To authorize a director or the firm of which he is a partner or any partner of such firm or a private company of which he is a member or director to enter into any contract with the company for making sale, purchase or supply of goods or rendering services with the company;
- To approve annual or half-yearly or other periodical accounts as are required to be circulated to the members;
- To approve bonus to employees;
- To incur capital expenditure on any single item or dispose of a fixed asset in accordance with the limits as prescribed by the Commission from time to time;
- Provided that the acceptance by a banking company in the ordinary course of its business of deposit of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, or placing of moneys on deposit by a banking company with another banking companion such conditions as the directors may prescribe, shall not be deemed to be a borrowing of money or, as the case may be, a making of loan by a banking company with the meeting of this section;
- To undertake obligations under leasing contracts exceeding one million rupees;
- To declare interim dividend; and
- Having regard to such amount as may be determined to be material (as construed in Generally Accepted Accounting Principles) by the Board
- To write off bad debts, advances and receivables;
- To write off inventories and other assets of the company
- To determine the terms of and the circumstances in which a law suit may be compromised and a claim or right in favour of a company may be released, extinguished or relinquished.
Section 198 and 200: Appointing CEO and determining Terms of his Appointment
The directors have the right to appoint an individual to be the Chief Executive of the company and determine the terms and conditions of appointment of a Chief Executive, if required by the company’s articles.
Section 202: Removal of CEO
The directors of a company by resolution passed by not less than three-fourths of the total number of directors may remove a chief executive before the expiration of his term of office.
Section 230: Maintaining Books of Accounts
The directors can decide to maintain books of accounts at a place other than the registered office of the company.
The directors, during business hours, have the right to inspect the books of accounts and other books and papers of the company.
The directors shall from time to time determine whether and to what extent and at what time and places and under what conditions or regulations the accounts and books or papers of the company or any of them shall be open to the inspection of members.
Section 248: Recommendation of the Dividend:
The dividend is always recommended by the Directors and declared by the company in general meeting.
Section 252: Appointment of Auditor
The first auditors of a company are to be appointed by the directors within sixty days of the date of incorporation of the company. The directors may fill in any causal vacancy in the office of auditors. Moreover, the directors fix the remuneration of the auditors, where the auditors have been appointed by them.
Section 494: Allotment of Shares for Inadequate Consideration
Any director may apply to the Court for a declaration that any shares have been allotted for inadequate consideration.
Duties of a director:
Every company director has a personal responsibility to ensure that all the statutory documents are filed with the Registrar and the Commission as and when required under the Ordinance. In particular:
- Audited accounts (only for public limited companies including association not for profit); and private limited companies having paid up capital of Rs. 3.00 million or above);
- Annual returns (Form A/B);
- Particulars of directors or other officers (Form 29); and
- Notice of change of registered office (Form 21)
Section 77: Directors Not to Refuse Transfer of Shares:
The directors of a company shall not refuse to transfer any shares or debentures that are fully paid unless the transfer deed is for any reason defective or invalid.
Section 146: Commencing Business
With respect to the procedure for commencement of business, the Chief Executive or one of the directors and the secretary are to file with the registrar a declaration that the conditions for commencement of business as are mentioned in this section have been complied with.
Section 156: Statutory Meeting of the Company
With respect to the statutory meeting of company the directors have the following duties:
- At least three directors, one of whom is to be the Chief Executive shall certify the statutory report.
- The statutory report is to be forwarded to every member of the company at least twenty one days before the meeting.
- At least five certified copies of the statutory report are also to be delivered to the registrar for registration.
- At the commencement of the meeting and throughout its duration, a list caused to be prepared by the directors showing the names, occupations, nationality and address of the members, and the number of shares held by them respectively is to be produced.
Section 177: Retiring Directors Continue to Perform Functions:
The retiring directors shall continue to perform their functions until their successors are elected. Moreover, the continuing directors are required to take immediate step to hold the election of directors and in case of any impediment report the circumstances of the case to the registrar within fifteen days of the expiry of the term laid down in section 180.
Section 178: Election of directors.
The directors of a company are required to fix the number of elected directors of the company not later than thirty-five days before the convening of the general meeting at which directors are to be elected.
Section 205: Register of Directors:
The directors are required to furnish to the company the particulars of their appointment or any change therein, as the case may be.
Section 230: Maintaining Books of Accounts
The directors are responsible for compliance with the statutory requirements regarding preparation and maintenance of proper books of account and circulation of financial statements that give a true and fair view.
Section 231: Facilitating Inspection of Books of Accounts
With respect to inspection of books of accounts and books and papers of a company by the registrar or by any officer authorized in this behalf by Commission, every director of the company is bound to:
- Produce all such books of accounts and books and papers as are in his custody or under his control.
- Furnish information, statements and explanations relating to the affairs of the company required by the abovementioned persons; and
- Provide reasonable assistance for such inspection
Section 233: Annual Accounts and Balance Sheet
The directors of every company are required to lay before the company in annual general meeting audited balance sheet and profit and loss account etc.
Section: 236: Directors Report
The directors are required to make out and attach to every balance sheet a report with respect to the state of the company’s affairs and other information and such report is signed by the chairman of the directors or the chief executive of the company on behalf of the directors if authorized in that behalf.
Section 241: Authentication of Balance Sheet
The directors shall approve, and the Chief Executive and at least one director shall sign, the balance sheet and profit and loss account or income and expenditure account of the company.
Section 261: Furnishing Information, Documents etc. to the Registrar
Every director is bound to furnish to the best of his power, such information, explanation or document as may be required by the registrar.
Section 362: Declaration of Solvency in case of Voluntary Winding-up
In case of voluntary winding up its directors may make a declaration that after a full inquiry into the affairs of the company, they are of the opinion that the company has no debts and it will be able to pay all its debts in full within such period not exceeding twelve months from the commencement of winding up.