Benefits of Private Limited Company Registration
PRIVATE LIMITED COMPANY
Earlier, starting a business was a tedious and time consuming job. But with Government of India’s ‘Make in India’ initiative to promote start-ups and small businesses to set up business in India by providing them numerous benefits for becoming an entrepreneur (self-employed) has gained a good response.
As a result, it has contributed in boosting the Indian markets, in-turn generating employment opportunities for everyone in each industry or sector.
For any organization to function effectively and systematically it is necessary to get it registered under the Indian laws. Registration not only gives legal recognition but also provides a right to the organization which can be exercised where any threat is observed to prove dangerous for its existence.
In this article, you will get a glimpse of how setting up of business by incorporating a Private Limited Company can benefit you as an entrepreneur and be fruitful in the long run.
According to the Companies Act, 2013 there are different types of Companies that can be incorporated in India. But the most secure option is forming a Private Limited Company.
Therefore, to run a business as a Private Limited Company in India, it is required to be registered under the Companies Act, 2013.
Benefits of being a Private Limited Company:
Liability risk is limited:
The name “Private Limited” suggests that the liability of the Company shall be limited. The risk of unlimited liability which is likely in case of partnership and unlimited companies is avoided. Further, personal assets of the owners of the Company are not at risk.
Shareholders or Members are part-owners:
Every shareholder or Member of the Company is a part-owner of the Company. Therefore, the approval from the shareholders is of great importance while passing of resolution to preform Special Business. The liabilities of shareholders are limited to their shares only.
Separate legal identity or status from its owners:
A private limited company once incorporated under the Companies law has its own unique legal identity and separate legal status under law. A Company Identification Number (CIN) is issued to identify the registered companies.
The existence of Private Limited companies is long term in nature and is unaffected by the existence/non-existence of their shareholders. A company shall only cease to exist when it legally ceases to exist under law.
Shareholders or Members:
A private Limited Company shall have minimum of two shareholders / members. The Maximum number of Shareholders/Members is restricted to 200.
Transferability of shares:
The shares of Private Limited Company are transferrable subject to few restrictions. In the event of death of an existing shareholder their legal heir becomes the new part-owner of shares unless expressed otherwise. This passing off the legal right is known as transmission of shares and it is different from transfer of shares.
The list of Compliances to be done for Private Limited Company is comparatively less than that of a Public Limited Company. They are not required to disclose their financial statements unlike the listed companies and specific classes of companies.
There is no minimum amount of capital requirement mentioned under the statue. The, entrepreneur(s) can introduce their desired amount as capital to register and start their business.
Capital of a company can be raised in many ways through shares, debentures (debt), further issue of shares via alteration of share capital, inviting deposits from Members.
For example, a Company can issues its shares at par means face value, on premium but is prohibited to issue shares on discount. But it can issue sweat equity shares at discount to its employees as a reward for their knowledge contribution towards the growth of the Company.
The tax liability of the Companies is only limited to the profits earned by it and not on the personal income of its owners. The Companies can claim various deductions available to it as per the Income Tax Act, 1961. Further, it can avail benefits through proper tax planning while acting within the legal framework.
One person, multiple roles:
A shareholder can also act as a director and employee of the company without adversely affecting the provisions of the Company laws and rules. A Director can also be a creditor of the Company. For instance, if any Company obtains loan from its Directors for meeting their working capital requirements.
A private limited company can hold assets in its own name. The assets owned by Company can be used by the Company to pay off the debts in uncertain events. A company can avail credit facility or bank loan by hypothecating of either of its assets by creating a charge on them until the loan amount is fully repaid.
The minimum number of Directors in a private limited company is two and maximum is fifteen.
Can sue and be sued:
A private limited company can sue and be sued in its own name. It can appoint a professional to appear in court proceedings on its behalf for any case.
Therefore, a Private Limited Company can be incorporated after the name approval letter is received by filing of web-based FORM SPICE + which enables to apply for PAN, TAN, ESIC, registrations, opening of a bank account, etc.
Easy Transfer of Ownership:
Private limited companies allow for the transfer of ownership through the buying and selling of shares. This provides flexibility for shareholders who may want to exit the business or bring in new investors. The transfer of shares can be facilitated through share purchase agreements, making it easier to change ownership without disrupting the company’s operations.