Before starting a business, it is important to decide well the company’s objectives, the business structure and its operations based on which the type of entity has to be chosen. Private limited company, a type of privately held entity, is one of the most preferred forms by entrepreneurs. It can have 50 shareholders and limits the owner’s liability to their shares and restricts them from publicly trading their shares.
Although it is expensive, a private limited company registration has some advantages like:
When businesses face unforeseen financial crises and in the verge of closure, a private limited company’s shareholders do not face the risk of losing their personal assets. Only the amount invested starting the business would be lost and that the Director’s personal properties would be safe. In the case of general Partnership companies, parterns are personally liable for the debts and if the business cannot repay the amount, partners have to sell their personal possessions for repayment.
Private limited companies easily accommodate equity funding as there is a clear distinction between shareholders and directors as well as limited liability. In fact, venture capitalists and private equity funds are unlikely to invest in any other structure. This is because LLPs would require them to become partners in the business, while an OPC can have only one shareholder. Also, companies who cannot afford to pay high can attract a talented workforce through shares, thereby limiting salaries.
A private limited company enjoys the privileges of borrowing more funds than LLPs as it has more options for taking on debt. Not only are bank loans easy to obtain (relative to OPCs and LLPs), the option of issuing debentures and convertible debentures are always available. Even banks and other financial institutions welcome private limited companies better than partnership entities.
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 can all find information relating to the company, such as authorised capital, names of directors, registered office, etc. This information makes a business more credible than entities that don’t have to furnish this information (such as partnerships and proprietorships).
Private limited companies can be sold or transferred, either partially or in full, to another individual or entity without any disruption to the current business.
If a business is into developing products on a global scale and aiming to expand its operations across the world, then it is important to get investments and form collaborations with foreign establishments. One advantage of private limited companies here is that they allow for FDI up to 100% through the automatic route, which means there is no requirement of any government approval for foreign companies to make an investment in India. This is against Partnerships, LLPs which need acceptance from the government.
Successful entrepreneurs are always on the lookout for opportunities wherever possible and in different industries or sectors. Often, they are eager to grab the chances and test waters. Private limited companies have the scope of utilising the chances as the business grows over time whereas sole proprietorships and partnerships cannot take up as they are tied to the promoter.
As private limted companies are regulated by the Companies Act 2013 and need to follow stringent procedures, disclose norms, comply with various legal requirements, they are more organized creating value for owners.
Thus, a private limited company offers much more advantages than other entities. It is always best to get the company registration done by legal experts.
10 Mistakes to avoid during online company registration in India.
Just tell us a few details about your business and submit the documents and we’ll begin the process. Within 20 working days, you’ll be ready to operate as a private limited company – without leaving home.
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