A private company suffers from the following limitations:
1. Smaller resources:
A private company cannot have more than fifty members. Its credit standing is lower than that of a public company. Therefore, the financial and managerial resources of a private company are comparatively limited.
2. Lack of transferability of shares:
There are restrictions on the transfer of shares in a private company. As a result a shareholder cannot leave a private company easily and quickly.
3. Poor protection to members:
A private company enjoys several exemptions from various provisions of the Companies Act. Minority members may suffer at the hands of the majority members. Dissatisfied members cannot cut off their connection with the company except at a loss.
4. No valuation of investment:
Shares of a private company are not listed on stock exchange. There are no regular dealings in these shares. A shareholder cannot, therefore, know the real value of his investment in a private company.
5. Lack of public confidence:
Public has little confidence in a private company because its affairs are unknown and it is not subject to strict control under the law.