Advantages of Initiating a Private Limited Company
Puja Bhardwaj | The CEO Magazine
Private Limited Company is the most famous type of business entity in India. It limits owner liability to their shares and restricts shareholders from publicly trading shares. The registration of Private limited company is governed by the Companies Act, 2013 and the Companies Incorporation Rules, 2014. To register a private limited company, there is a need for a minimum of two shareholders, and the maximum number of members is 200.
A Private Limited Company is considered as a hybrid business entity that combines the advantages of a corporation and a sole proprietorship. Here, there are some essential points, showing the benefits of initiating a Private Limited Company:
Separate Legal Entity
A Private Limited Company is a legal entity and a juristic person, company has a wide range of legal freedom such as owning property and incurring debts. In this type of business entity, the shareholders of a company do not have personal liability to the creditors of a company for the company’s debts.
In private limited company, there is limited liability. Limited liability basically shows the status of being legally responsible only to a limited amount for debts of a company. In this kind of business, the liability of the shareholders in respect of the company’s debts is limited to the equity invested by them in the company.
Limited Risk to Personal Assets
Since the shareholders of a private limited company have limited liability so, a shareholder is liable to pay for the company’s liability only to the extent of the contribution made by him.
Do Business Globally
There was a time when Indian companies used to develop products for foreign businesses. Present-day, Indian startups are developing products and competing globally. Private limited companies are the unique kind entities that allow for 100% FDI through the automatic route, meaning, any foreign entity or foreign person can invest in a company without any prior government approval. Therefore, if any entrepreneur has aspirations for going international, then it is best to start a private limited company.
Management Under control
Because the parent company controls 100% shares of its subsidiary, it is able to maintain strict operational management of the private limited company in India.
Easy Transferable Ownership
The shares and other interest of any member in the Company tend to be movable property and can be transferred in the manner so provided by the Articles of such company. It makes it easier to subscribe or leave the membership of any Company. Besides, it also enables an easier transfer of ownership.
The private limited entities are the best option when it comes to tax savings. Under it, owners report the profits and losses of the business on their personal tax returns so; it results in lower taxes compared to a corporation.
Apart from the above, there are many benefits:
- In a private limited company there is no need to prepare a report on the Annual General Meeting at the time of annual filing
- It is not necessary to have two directors to establish business with private limited
- The structure of a Private Limited Company is perfectly suitable for both profit or non-profit use
These are the advantages of a private limited company. Though, it has disadvantages too like this kind of entities is more expensive than sole trader or partnership, owner of the company get less personal control over the company to sole businessman due to compliance issues and more. All in all, it can be said like every coin has two faces head and tail, this business entities has also both advantage and disadvantage.
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