Limited liability, easy formation, immediate commencement of business upon incorporation, liberal payment of remuneration and loans to directors without any restrictions, easier inter-corporate loans, etc., are some of the concessions and privileges which favour formation of private limited companies. According to rough estimates, out of about 1.72 lakhs incorporated companies in India at the end of December, 1988 almost 89% were private limited companies.
Lesser disclosure requirements
Lesser disclosure requirements and tremendous ease in operation continue to be the dominating factors for carrying on of trade and industry through the medium of private limited companies. Under the Companies Act, a private limited company is, however, prohibited to issue any invitation to the public to subscribe to any shares in or debentures of the company and have to limit the number of its members to 50 and restrict the right of its members to transfer shares. Thus the private limited companies are run mostly as family concerns without any direct involvement of the public in their activities. However, in spite of the restrictions in the matter of raising finance through issue of shares/debentures, many private limited companies have been managing large projects and have huge turnover.
Companies have been managing large projects and have huge turnover
Companies have been managing large projects and have huge turnover. While the private limited companies are restrained from inviting public deposits through an advertisement, a number of companies have managed to obtain public deposits from the relatives and friends of the directors/members, without making an advertisement. The corporate personality of the private companies also enables them to enjoy the facility of institutional finance, and their being managed like a family concern does not stand in the way of their benefiting from the public sector institutions.