The private limited Company is the most preferred form of business and very popular among the startups; It is necessary to understand the correct and legal meaning of the term Private Limited Company and what are the advantages of forming a company as private limited. As you must be aware that at least two shareholders form a private limited company and the maximum limit is two hundred shareholders. In this blog post, we shall be discussing the advantages of a Private Limited Company.
Setindiabiz offers its professional services for opening a private limited company. To understand the list of documents and stepwise process of company registration, please visit our dedicated webpage on Company Registration. You may reach us for any assistance in setting up your Company. We have listed out the advantages of a private limited company in the below section of the post. Please leave a message in the comments sections for us to improvise or to ask any question on why people register a private limited company.
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Limited Liability of Shareholders
One of the most crucial features of the Company is the Limited Liability to its shareholders. By limited liability, we imply that the owners or shareholders of the Company are not personally liable to pay debts of the business. They are only responsible for the unpaid shares of the capital of the Company. To reap the Limited Liability Benefit, the owner needs to comply with all laws. To cover the risks of running into losses that are always there while running a business, the protection of limited liability encourages and assures the entrepreneur to take risks and move ahead in his entrepreneurial journey without the fear of uncertainty of losing everything.
Perpetual Existence implies that the Company is unaffected by the death of the owner or the transfer of its shares to a new shareholder. The best part of perpetual existence is that a company will continue to exist, no matter how many directors, officers, and shareholders join or leave. This is possible only in an incorporated form of business as a company.
Easy Transfer of Ownership
An unregistered business entity is incapable of handling matters related to the sharing of ownership or transferability. Proprietorships being the extension of the proprietor and partnership firm with undefined possession of assets, are difficult to transfer. At the same time, registered businesses like LLP or a company is a separate legal entity having defined assets and liabilities distinct from its members. This makes the process of sharing the ownership or transferability of a registered business a lot easy. The shares of a company are considered movable property and are freely transferable. A shareholder can transfer shares to any person by just executing a share transfer form and handing over the share certificate of the Company. However, such transfer of share must be approved by the board of directors of the Company.
Option to Sell the business
The companies can be sold or transferred in its entirety, and the entire process of selling the Company is easy and straightforward. You must have seen many exits at a very high premium price to the potential buyer of the Company, for example, the sale of Flipkart to Walmart. We assist our clients in such restructuring of the companies.
Company Can Own Property in its Name?
Like a natural person, a private limited company can purchase, sell, own, possess, enjoy, and transfer property rights to anyone. Moreover, no personal or separate claim can be made upon the property of the Company by its shareholder as the Company remain in existence.
The tax rate for a company incorporated in India is the lowest in the world. For a manufacturing company, the tax rate is 15% whereas for all other kinds of companies such as trading, services, etc. the Income Tax Rate is 22%. There are some nominal surcharge and cess on and over the above said corporate Income Tax Rates.
Easy to Raise Money Through Private Placement
A business always requires funds to carry out its operations and expand further to fulfil the vision of the startup. The investments needed for the long term often come in the form of equity or debt. As the proprietorship or partnership firm is unregistered, it isn’t easy to obtain equity funds for such businesses for the sole reason that most of the financial institutions and banks do not prefer to lend money to unregistered business entities. Hence, we highly recommend you register your business to raise funds in your business name. Raising money in a proprietary concern, partnership, or LLP is complicated and cumbersome. A company can get investment from a closed group of people up to 200 shareholders by way of the private placement is straightforward for a company. The Company can either allot new shares to the investors/angel investors at a price higher than the stock’s valuation. Since the companies act prescribes a clear and precise method to raise funds; hence this is a preferred choice for new startups.
Foreign Direct Investment (FDI)
Traditionally the FDI comes to a company form of business, and The Indian companies may allot new shares to an overseas investor, or enter into a joint venture and create a new company for a specific purpose. When it comes to funding and FDI, the Company is the best choice.
Capacity to Sue and to be Sued in Its Name
Private Limited Companies enjoy the advantage to carry out legal proceedings and to bring a suit in the court of law. Just like any other type of person, a company being an independent legal entity, can initiate legal action against any other person and similarly can be sued in the court of law.
Separate Legal Entity
The company is regarded as a separate legal person, that is a creation of law, and different from its owners, directors and officers. The company comes into existence after an elaborate process of company incorporation is followed as per the provisions of the Companies Act, 2013, resulting in the issue of Certificate of Incorporation of the company.