Benefits of Private Limited Company Registration in India
Introduction
One of the major decisions that you have to make at the time of business formation is what type of legal entity should be registered. Among numerous entrepreneurs, private limited companies happen to be the most favorite due to benefits offered. However, everything has its own negative effect also and this has a drawback, that it should be studied properly. The article, therefore, would be an elaboration of benefits of registering a private limited company, helpful for a well-informed decision concerning your business.
What is a Private Limited Company?
The Companies Act of 2013 defines a private limited company under section 2(68).
A private limited company is an organization which remains privately held by a set of people. The liability of the member is restricted up to their shares in the given company, but the share of this private limited company is not accessible for trading publicly.
The most common business structure among private limited companies in India can be established with two members and two directors for its registration, but a private limited company can go up to 200 members at a maximum. It is recommended to most of the professionally managed small and medium-sized businesses or family-run ones.
Benefits of Private Limited Company Registration
Your legal structure of a business determines your tax rates, management & paperwork requirements, fundraising abilities & more.
You, therefore, need to be very careful while choosing your business structure because your ITR will depend on it. When choosing your business structure to register your company or entity remember that each structure has legal requirements that must be met.
Below are the points of consideration regarding the benefits of the private company-
1. No Minimum Paid-up Capital
As per the Companies Act, 2013 which has amended the paid-up capital is not mandatory for a private limited company. It may be registered with an authorized share capital of a small amount of Rs.1,00,000.
2. Limited Liability of Members
In a private company the liability of the members of a company limited only up to the face value of the shares taken by them. That is why, in case of a winding-up of the company if it is limited by shares there can be no financial liability of the members beyond the unpaid portion of the shares.
3. Separate Legal Entity and Perpetual Existence
A Pvt company has a perpetual succession, that is, the company enjoys continued or uninterrupted existence unless it is lawfully dissolved.
This existence is independent of the life span of its owners because it possesses a different legal identity. It may exist even in adverse cases such as death, resignation, retirement, removal, insolvency, or proven insanity of shareholders.
4. Attractive to Investors
Private Limited Companies are attractive for the investors due to its excellent growth potential and historical track records of success in the Indian market. Moreover, a private limited company is a good name in both Indian and domestic markets, and it sounds more attractive to business owners who wish to be successful in their respective fields.
Some of the giant business brands, such as Parle, Google, Swiggy and Flipkart, are all Private Limited Companies.
5. Lower Income Tax
Low-cost burden of legal and tax compliances is one of the most important advantages of a Private Limited Company.
Private limited companies also have several privileges with regard to taxes. Such company has its different tax rate, which could be less than the rate of individual income tax to the shareholders. Many tax deductions and exemptions that business enterprises are entitled to cut down the tax liability burden.
6. Low minimal and maximum shareholder limits
A private limited company in India can start with just two shareholders, providing numerous benefits for smaller companies struggling to attract investors. However, incorporated companies can raise large investments in later stages and a maximum of 200 shareholders are allowed. This is very helpful in cases of local start-ups that must grow locally but have the intention to go global.
On the other hand, public limited companies require at least seven shareholders and have an indefinite maximum limit.
7. Free & Easy transferability of shares
Shares of the company limited by shares may be transferred by shareholder at any other person. Comparatively, it is relatively easy than transferring the interest in business running like as a proprietary concern or that of a partnership. Shares can be transferred simply by completing and signing a share transfer form, and then delivering the buyer the shares and the share certificate.
8. Fund Raising
A company can raise money more easily than a partnership firm or sole proprietorship. Venture capitalists & angel investors only make investments in public or private limited companies.
Conclusion
Start-ups face numerous dilemmas when they decide to incorporate their business or not, and in choosing the right type of business form for the registration. This is primarily because the cost of incorporation and compliance is quite high, which at the initial stages of any start-up, they could not afford.
As far as the legal status is concerned, a startup can anyway get incorporated either as a private limited, an LLP, or a partnership firm only. Amongst them, a private limited company registration is the most practical choice, here are various advantages of a pvt. Ltd. company over the others.
Bibliography
The Companies Act, 2013 (Act No. 18 of 2013)
https://www.mca.gov.in
https://www.icsi.edu/home
