Advantages-of-a-private-limited-company

Advantages of a Private Limited Company

  • By:ARIVAZHAGAN LE INTELLIGENSIA

What is a Private Limited Company

A Private Limited Company is a type of business entity that is held by a small group of people. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Private limited company registration is governed by the Companies Act, 2013. To register a Private Limited Company, you need to have a minimum of 2 share-holders, One lakh share capital, and office space.

Some of my clients often use to ask a question to me, why I should I opt for a Private Limited, what are the advantages of Private Limited Company?

The Benefit of a Private Limited Company:

1. Separate Legal Entity:

Separate Legal entity means, an organization with distinct existence. In other words, a private Limited company is considered as a Separate person away from the shareholders and Directors. Directors are just the agents of the Company. So the shareholders and directors are not liable for the creditors of the company for any debts.

2. Limited Liability:

One of the principal advantages of doing business under the Private A limited form of organization is that the privilege of limited liability. In simple words, if the company undergoes financial distress because of whatsoever reasons, the personal assets of members will not be used to pay the debts of the Company as the liability of the person is limited.

3. Continues existence / perpetual succession:

Another advantage of a private limited company is that its continued existence, even after the owner dies or leaves the business. Which is legally called Perpetual Succession which means uninterrupted existence until it is legally dissolved?

4. Fundraising:

Private limited companies can borrow funds from the debentures as well as the shareholders. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

5. Easy transferability of ownership:

The Ownership of the Private Limited Company can be easily be transferred by transferring shares of the shareholders. With the consent of all other shareholders the shares can be transferred by way of share transfer certificate.

6. Foreign direct investment is allowed:

100% Foreign Direct Investment is allowed in various sectors through Private Limited Company without any Government approval. But whereas FDI is not allowed in Proprietorship or Partnership, LLP. Even foreign nationals, foreign corporate entities, or NRIs are allowed to be Directors or Shareholders in a Private Limited Company.

7. Great credibility:

The name Private Limited Company creates great credibility among its customers and vendors.

8. Acquire property:

As the Private Limited company is a separate and juristic entity, it can acquire property in its own name. and it can also sell and lease out the said property in the name of the company itself. The shareholder cannot make a claim upon the property of the Private Limited Company when the company is a going concern.

9. Capacity to sue in the name of the company:

If in the case of Proprietorship or unregistered partnership, it cannot initiate any legal action in its own name against any third-party defaulter. But whereas a Private Limited Company can imitate a Legal Proceeding in the name of the Company itself.

10. Attract investors:

A Private Limited Company in India is the only form of business except for Public Limited Companies that can raise funds from the Venture Capitalists or Angel investors.

Disadvantages:

  1. Shares cannot be issued in public
  2. Minimum number of shareholders required
  3. Winding-up of company

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Posted in: Company Registration, Private Limited Registration
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