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Disadvantages of Private Limited Company Registration in India

Private Limited Company Registration in India

Are you an aspiring entrepreneur and want to start your entrepreneurial journey in India? The first and the most confusing step is to choose the right business structure as per your business goals. In India, the most popular business structure is a Private Limited Company Registration. If you register  Pvt Ltd Company online, it will offer you a number of benefits. As we all know that a coin has two sides, so along with the benefits, a private limited company registration in India has its own set of disadvantages. Today, in this blog, we will discuss about its limitations. 

Private Limited Company Registration in India

Do you know about a private limited registration? A private limited company is a business entity that has been owned by its shareholders privately and also has limited liability. A private limited company is registered under the Companies Act 2013. You can form a private company with just two members. Also the shares of this type of company are not shareable to the general public. You can transfer your shares only to the members of the company.

Before moving ahead with the disadvantages of an Online Private Limited Company Registration let’s have a quick glimpse on its features and requirements.

Features of Private Limited Company Registration in India

As you know that there is the number of benefits of the Private Limited Company registration process in India. So in this section we will tell you about its features.

  • Limited Liability
  • Separate Legal Entity
  • Credibility and Trust
  • Tax Benefits
  • Easy Transfer of Ownership
  • Brand Protection

Key Requirements of Private Limited Company Registration in India

If you think about the registration of a Private Limited Company, you have a proper knowledge about the minimum requirements for the Pvt Ltd Company registration in India. Let’s discuss about the basic requirements of a Private Limited Registration-

  • There is a requirement of minimum 2 directors and at least 1 director should be an Indian Resident.
  • For Private Ltd Company Registration, no minimum capital will be required.
  • You can register Private Limited Company at the residential place also.
  • The process of private limited registration is 100% online.
  • For Private Limited Registration Online, the age of the applicant must be 18 years and above
  • You must choose a unique name for your company.
  • To register Pvt Ltd, the number of directors can be 2 to 15.
  • For online Private Limited Registration, number of shareholders can be up to 200.

Disadvantages of a Private Limited Company Registration in India

Although, the registration of Private Limited Company in India offers the entrepreneurs a wide range of benefits but there are some limitations also. As we told earlier that every coin has two sides, so along with advantages we should have to look into the disadvantages of a Pvt Ltd registration. Here, in this section of the blog, it’s the time to discuss about the limitations of Pvt Ltd Company Registration online-

High Compliance Costs

One of the primary limitations of Pvt Ltd Company registration in India is its high costs of compliances. The compliance cost of a Private limited company includes-

  • Initial Registration Costs: A private limited company registration process involves the several charges like professional fees, government fees, and other administrative expenses.
  • Online Compliance: It is mandatory for the companies to comply with the various statutory requirements like annual returns, maintaining statutory registers, and conducting audits. These post incorporation requirements attract the regular costs that include professional fees for accountants and legal advisors.

Restricted Share Transfer

The other major limitation of a Pvt Ltd Company registration in India is the restriction imposed on the transfer of shares. The members of a Private Limited Company neither transfer their shares freely to the general public nor sell them on the stock exchange of platforms. If any member of Pvt Ltd Registration wants to share their transfer, they need the consent of board directors. To transfer the shares, a board meeting has been organized and the member of the company passed the resolution. Share transfer requires the approval of the existing shareholders. 

Limited Access to Capital

A Private Limited Company cannot raise the capital from the general public as its members can’t sale their shares. A Pvt Ltd company can raise the funds only from smaller shareholders or private investors and not from the general public. This limitation can create hurdle in the expansion of the ability of company, investment in new projects, or opportunities for the growth. 

Complicated Dissolution Process

One of the major disadvantages of a Pvt Ltd Registration in India is the complicated process of dissolution of the company. As dissolution involves several legal and procedural requirements, so it can be time consuming as well as costly. The dissolution process includes the dissolution passed by the shareholders and also the settlement of all the liabilities the company owes to them. This process also involves the settlement of the disputes among the shareholders and creditors.

The complexity and legal formalities that have been associated with the process of dissolution is a challenge and also create an additional burden for the directors and shareholders of the company.

Limited Number of Shareholders

As per the Companies Act 2013, a Pvt Ltd Registration can have a maximum number of 200 shareholders. It can create problem in raising capital and attracting capital.

Complication in Expansion

Unlike other business structures, it can be complicated to expand a Private limited Company. If you want to expand your private company, it requires several regulatory approvals which can be more complex and time consuming. As your company grows, it can become more difficult to manage the operations and making sure about the compliance with regulations.

Strict Regulatory Requirements

It is compulsory for the Private Limited Company to stick to the regulatory requirements. There are mandatory filings including annual returns, financial statements, and director reports with ROC i.e. Registrar of Companies. For a Private limited registration, regular board meetings and AGMs i.e. Annual General Meetings are also compulsory. It will increase the administrative responsibilities. It can be complicated for the members of a private limited company to stick to the standards of corporate governance. Members of the company require a thorough understanding about the legal and regulatory frameworks. 

Lack of Confidentiality and Privacy

As a registered entity, a private limited company has to disclose some crucial information to the regulatory authorities and has to make it available for the public inspection. Some important documents including annual return and financial statements can become accessible to the competitors, stakeholders and even general public. This transparency exposes the strengths and weaknesses of the company to the public.

These are some of the major disadvantages of a Private Limited Company Registration in India. So while choosing the right business structure for your company keep these points in your mind and takes the decision accordingly. But it is important for you to see the both sides of the coin to make informed decision.

Final Words

Although Private Limited Registration provides you a number of benefits, but it is also important for you to take a look on its potential limitations. If you keep in mind the advantages as well as disadvantages of a business structure, you can make the informed decision. A Pvt Ltd Company Registration in India is preferred choice of the entrepreneurs who want to establish their business due to its benefits. But as in this blog we have discussed about the disadvantages of a private company, so you should have to opt for the right business structure as per your business needs and goals.

If you have any confusion so Legal Pillers is here for you. Our dedicated team of experts will offer the right guidance for your business. Moreover our team of legal professionals provides the guidance and advice that have been needed by the entrepreneurs like you. It has not been so difficult to start the entrepreneurial journey. Choose Legal Pillers as your trusted partner and register your company effortlessly. 

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