Private Limited Companies

• Its operations are governed by the Companies Act.
• Formed by 2-50 shareholders.
• In other countries a company is formed by 2 or more people with no maximum number of shareholders.
• Has a lot of legal formalities including:
• It has to create an Articles of Association, Memorandum of Association and a Statutory Declaration.
• All these documents have to be submitted to the Registrar of Companies.
• It is registered by a Certificate of Incorporation by the Registrar of Companies.
• The name of the company ends with “PVT” Limited.
• It is a separate legal entity i.e.:
• It exists as a separate juristic person.
• It is independent of its owners.
• It can sue or be sued in its own name.
• The company can make its own contracts.
• It is owned by shareholders.

Control and Management

• Controlled and managed by a Board of Directors.
• These are elected by shareholders.
• The election takes place at the Annual General Meeting.
• A Managing Director (sometimes known as a Chief Executive Officer) who is chosen by the Board of Directors runs the business on a day to day basis.
• A company must have at least one Director.
• Directors must report back on the company’s performance to the shareholders at least once a year.
• Ordinary Shareholders vote at the Annual General Meeting to pass resolutions.
• Financial Accounts are not published, they are only filled with the Registrar of Companies.
• There are limitations on how shares can be transferred.
• Can choose whether or not to appoint an external Auditor.

Liability

• All shareholders have limited liability.
• This means that they only lose the amounts that they invested and not their personal property.

Raising of Capital.

• Through the sell of shares to individuals who are privately invited.
• By ploughing back profits ( Retained Earnings)
• Loans and overdrafts from banks.
• Mortgage Finance.
• Trade credit.
• Buying on Hire Purchase.
• Leasing of Fixed Assets.
• Debt Factoring

Distribution of Profits

• Are paid as dividends to shareholders.
• Are ploughed back into the business (Retained Earnings)
• Used to pay taxes.
• Are set aside as General Reserves.
• Used to service loans and Overdrafts.
• Used to sponsor activities e.g. charity organisations.

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