The Private Limited Company has been successful in almost all countries of the world. This form is suitable where large resources are required and the production has to the carried out on a large scale. The number of private limited companies has shown a phenomenal increase in the twentieth century. Some of the merits of private limited company form of organization are discussed below:
1. Accumulation of Large Resources
The main drawback of the sole-trade and partnership concerns has been the scarcity of resources. The resources of a sole trader and of partners being limited these enterprises have always suffered for want of funds. A company can collect large sum of money from large number of shareholders.
2. Limited Liability
The liability of members in a private limited company form of organization is limited to the nominal value of the shares they have acquired. If a person has purchased a share of Rs. 100, his liability is limited to Rs. 100 only. If the share is partially paid, then this can be required to pay only the unpaid value of the share. In no case the total payment will exceed Rs. 100. The limited liability encourages many persons to invest in shares of Private Limited Company. Many persons will be reluctant to invest in those enterprises where liability is unlimited.
3. Continuity of Existence.
When a company is incorporated, it becomes a separate legal entity. It is an entity with perpetual succession. The members of a company may go on changing from time to time, but that does not affect the continuity of a company. The death or insolvency of members does not in any way affect the corporate existence of the company. The continuity of a company is not only in the interests of the members but is also beneficial for the society. The discontinuation of a company may causes wastage of resources and inconvenience to the consumers.
4. Efficient Management
In Private Limited Company form of organization, ownership is separate from management. It enables the company to appoint expert and qualified persons for managing various business functions. The availability of large-scale resources enables the company to attract talented persons by offering them higher salaries and better career opportunities. The efficient management will help the company to expand and diversify its activities.
5. Economies of Large Scale Production
With the availability of large resources, the company can organize production on a big scale. The increase in scale and size of the business will result in economics in production, purchase, marketing and management, etc. These economies will enable the company to produce goods at a lower cost thus resulting in more profits. The company will help consumers by providing them with cheaper goods and will also be able to accumulate more resources for further expansion.
6. Ability to Cope with Changing Business Environment
The present business enterprises operate under uncertain economic and technological environment. Technological changes are taking place every day. The needs of consumers are varied and changing. To cope with the changing economic environment every business is required to invest money on research and developmental programmes. Sole trade concerns or partnership firms cannot afford to spend money on research. Private Limited Companies can afford to invest money on research projects. It will enable them to cope with changing business conditions.
7. Diffused Risk
In sole trade and in partnership business the risk is shared by a small number of persons. Further uncertainties discourage them from taking up new ventures for fear of frisk. In private limited company from of organization, the number of contributors is large; so risk is shred by a large number of persons. The burden to be shared by different individuals is insignificant. It enables companies to take up new ventures.
8. Social Benefits
The private limited company form of organization mobilized scattered savings of the community. These savings can be better used for productive purposes. The companies also enable financial institutions to invest their money providing them avenues. It also enables the utilization of natural resources for better productive uses. Large scale production enjoys number of economies enabling low cost of production. The society is supplied with good quality of goods.