Company Incorporation

Advantages of a Private Limited Company

If you want to make it big in the future and have adequate opportunities to expand, the private limited model is the best way to structure your company. In this read, we’ll be discussing the various advantages of incorporating a private limited company.

Choosing the correct structure for registering your business entity can have a significant impact on how you approach its operation. Because of its obvious benefits over LLPs, establishing a private limited company is one of the smartest ways to proceed.

When starting a business, it is critical to have a clear vision of the sort of operation you want to establish. This is because only from your vision can you ascertain the type of business you need to register. 

The private limited company structure is the preferred form of business for most mid to large-sized businesses, and it is frequently chosen over the limited liability partnerships.  This is due to the fact that a private limited company enjoys many more functionalities and benefits, despite being slightly more expensive to incorporate and maintain.

A minimum number of two directors who are adults are required to incorporate a private limited company. One of the directors of such a private limited company has to be an Indian citizen and Indian resident. The other director(s) can be a foreign national.  It is also required to have two shareholders for a private limited company. The shareholders can either be natural persons or artificial legal entities.

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Benefits of Incorporating a Private Limited Company

  • Limited Liability: Businesses often need to borrow money. All partners are personally liable for all debt raised in structures such as general partnerships. If the partnership is unable to repay its debts, the partners will be forced to sell their personal assets to do so. On the other hand, only the amount invested in starting the business would be lost in a private company, the directors’ and shareholders’ personal assets would be safe from any business-related risks.
  • Access to Funding: Private limited companies can easily accommodate equity funding. Moreover, such entities enjoy limited liability as well. In fact, venture capitalists and private equity funds are unlikely to invest in any other structure of business operation.

This is because investing in LLPs requires them to become business partners, whereas an OPC can only have one shareholder. This feature of private limited companies also allows corporations to hire top talent that they might not have been able to afford otherwise.

  • Debt Capacity: A private limited company has more borrowing options than an LLP. Bank loans are not only easy to obtain (in comparison to OPCs and LLPs), but the option of issuing debentures and convertible debentures is always available to private limited companies.
  • Greater Credibility: A private limited company must make a lot of information about its structure, operations and financials available to the Registrar of Companies. This information ends up in the public domain

Therefore, vendors, lenders, employees and the public at large can find all other information relating to the company, such as authorised capital, names of directors, registered office, etc. 

This information makes a private company more credible than other entities (such as partnerships and proprietorships) that don’t have to furnish such information.

  • Easy Exit: Private limited companies can be sold or transferred, either partially or wholly, to another individual or entity without causing any disruption to current business operations.

The Takeaway

Incorporating a private company is the best way to ensure that you receive appropriate funding at the right time from professional fundraising options.

To complete the task of incorporation in a timely manner without any hassle, we recommend that you seek the counsel of experienced lawyers such as the experts at Vakilsearch. Get in touch with our team today!

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