Advantages of a Private Limited Company

Many start-ups begin their venture without any proper documentation or company registration. This leads to confusion in addition to a lot of risk of increased liability. Entrepreneurs tend to create a format structure of incorporation of private limited company in India in order to capitalize on various advantages.

A private limited company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publically traded.

Advantages of incorporation of the Private Limited Company in India

Independent Legal entity for Business Continuity

Private limited company is an independent legal entity; separate from its promoter, shareholders or members. Typical purpose of registration of a Private Limited company is continuity of business till eternity. Irrespective of the life of people incorporating a private limited company, it continues to operate through the generations.

Easier to raise capital by roping in more shareholders

The Private Limited Company registration or incorporation is the most popular and useful form of business structure among the startups, small and medium size business. The basic purpose with such companies remains the easy introduction of non related people or entities as shareholders as such providing capital to the business without any hassles or personal guarantees. Raising of funds from known associates, other family members is more streamlined. The business, being in the form of a separate legal entity, allows the Company easy access to borrowed funds from banks and financial institutions

Limited Liability of promoters and other shareholders

The Private Limited company incorporation also decreases the risk of liabilities of the shareholders or members of the company, in case of an unfortunate incident of a default, to the extent of capital provided/contributed. This means that the personal assets of any member or shareholders remain untouched.

Corporate governance and reputation

Another advantage of having a Private Limited Company is that it reaffirms its legitimacy and attracts talented employees. It is generally believed by the people that private limited companies, being regulated by Ministry of Corporate Affairs (MCA), will have higher corporate governance as compared to other unregistered structures. This also leads to better perception in the job markets and helps in attracting better talent.

Trustworthiness

Companies Act, 2013 mandates the registration of Private Limited Companies in India with the Registrar of companies (ROC). It is possible to check or access the details of any registered private limited on the MCA (Ministry of Corporate affairs) website http://www.mca.gov.in/. Details of Directors and Assets of Company given as security for borrowed funds, documents like Financial Statements, Annual Returns etc of the company are also available on the same website. This creates a transparency for other people investing in the company or even dealing with the company.

Dissolution

An underrated advantage of registering as a Private Limited Company in a systematic and planned manner is that it becomes possible to dissolve the same company in a hassle free manner if and when the need arises.