A private limited company is owned by a group of people who pool their money and work together.
This company is limited by shares, which means that the ownership of the company is divided into shares owned by the shareholders.
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How is it different from other types of companies?
One of the main differences between a private limited company and other types of companies is that the shares of a private limited company cannot be sold to the general public.
Additionally, the company is limited by the number of shareholders it can have, which is between two to fifty people.
What are the advantages of a Private Limited Company?
The shareholders of a private limited company are not liable for business debts beyond the value of their shares, even if they are working directors, except in cases of fraud or wrongful trading.
The company has a separate legal identity from its owners, which means that the creditors’ claims are restricted to its assets in case of liquidation.
Who owns and manages the company?
The owners of a private limited company are called shareholders, and they elect a board of directors responsible for establishing the general policies of the corporation.
The Board of directors also appoints the president and other key officers of the company.
Regulations for Private Limited Companies
The Companies Act 1965 protects the rights and interests of shareholders and investors and provides regulations for the incorporation of companies, the formulation of company constitutions, management and closures.
How to identify a Private Limited Company
The name of a private limited company ends with the words ‘Sendirian Berhad’ or ‘Private Limited’ with its abbreviation ‘Sdn Bhd’ or ‘Pte Ltd’. This indicates that a group of people owns the company.
Advantages of a Private Limited Company
A private limited company is a type of business organization that offers certain benefits to its shareholders. Here are some advantages of a private limited company:
Limited Liability: The company’s liabilities do not affect the shareholders’ assets. The liabilities of the company’s members are limited to the capital they have contributed.
Perpetual Life: The lifespan of a private limited company is not dependent on the age or resignation of its members. This means the company can continue to exist even if its original members leave.
Skilled Employees: A private limited company can attract skilled employees because the company’s lifespan is guaranteed. This gives employees a sense of job security.
Ease of Expansion: A private limited company is generally easier to expand and develop because of its simplicity in equity participation. The size of the company is not a barrier to growth.
Independent Management: Shareholders are not burdened with the management of the business. The Board of Directors, appointed by the company’s shareholders, are responsible for managing the business.
Ease of Raising Capital: Funds can be easily acquired by exchanging ownership shares or obtaining loans from financial institutions. Funds can be accumulated from time to time.
Disadvantages of a Private Limited Company
While a private limited company offers many advantages, it also has disadvantages. Here are some disadvantages of a private limited company:
High Set-up Costs: Setting up a private limited company is high. This includes payment according to the authorized capital, professional fees, filing charges, printing the company’s Memorandum of Association and Articles of Association, share certificates, and the company’s seal.
High Taxation: The company must pay corporate and personal income taxes. Any company earnings are first taxed as income to the corporation, which may result in double taxation.
Limited Membership: At most, the number of members in a private limited company can be 50 individuals.
Lack of Freedom in the Transfer of Ownership: A private limited company can only transfer ownership of its members’ shares with the company’s Board of directors’ approval. This can limit the freedom of shareholders to sell their shares.
Regulations: A private limited company is subject to more rules and regulations. It must always abide by the rules and fulfil the Companies Commission of Malaysia (CCM) terms. A private limited company cannot offer or sell shares or debentures to the general public.
To access relevant information, check out the following blogs:
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- Kijang Economy Blog for Economics.
