BENEFITS OF PRIVATE LIMITED IN INDIA?
INTRODUCTION
A private limited company (Pvt. Ltd.) in India is a type of business entity that is incorporated under the Companies Act, 2013. It is a separate legal entity from its shareholders, which means that the shareholders are not personally liable for the debts of the company. This can be a great protection for shareholders, especially if the company is unsuccessful.
Here are the benefits of private limited in India, in more detail:
Limited liability: The most important benefit of a private limited company is that its shareholders have limited liability. This means that the shareholders are only liable for the debts of the company up to the amount of their shares. This can be a great protection for shareholders, especially if the company is unsuccessful.
Separate legal entity: A private limited company is a separate legal entity from its shareholders. This means that the company can own assets, enter into contracts, and sue and be sued in its own name. This can be a great advantage for businesses, as it allows them to operate more flexibly and to protect their personal assets from the risks of business.
Ease of raising capital: Private limited companies can raise capital more easily than other types of businesses. This is because they can issue shares to investors, which can be a great way to raise money to grow the business.
Credibility: A private limited company is seen as being more credible than other types of businesses. This is because it is a more formal business structure, and it is subject to more regulations. This can be a great advantage for businesses, as it can help them to attract customers and clients.
Tax benefits: Private limited companies can enjoy certain tax benefits, such as a lower corporate tax rate. This can save businesses money on their taxes, which can be a great advantage.
Transferability of shares: The shares of a private limited company can be freely transferred to other people. This can be a great advantage for businesses, as it allows them to grow and expand more easily.
Step-by-step guide to starting a private limited company in India:
- Choose a name for your company: The name of your company must be unique and cannot be the same as the name of any other existing company. You can check the availability of a company name on the Ministry of Corporate Affairs (MCA) website.
- File the incorporation documents: You will need to file the incorporation documents with the MCA. These documents include the memorandum of association (MoA) and the articles of association (AOA). The MoA is the constitution of the company, and the AOA sets out the rules and regulations of the company.
- Appoint directors and shareholders: You will need to appoint at least two directors and two shareholders. The directors are responsible for the management of the company, and the shareholders are the owners of the company.
- Obtain a certificate of incorporation: Once you have filed the incorporation documents and appointed the directors and shareholders, you will receive a certificate of incorporation from the MCA. This is the official document that confirms that your company has been incorporated.
- Open a bank account: You will need to open a bank account for your company. This will allow you to receive and make payments on behalf of the company.
- Get an official seal: You will need to get an official seal for your company. This is a stamp that will be used to authenticate the company’s documents.
- Register for taxes: You will need to register your company for taxes with the government. This includes registering for GST, income tax, and other applicable taxes.
Additional resources:
- The Ministry of Corporate Affairs website: https://www.mca.gov.in/
- The Startup India website: https://www.startupindia.gov.in/
- The Invest India website: https://www.investindia.gov.in/
some of the advantages and disadvantages of forming a private limited company in India:
Advantages
- Limited liability: As mentioned above, the shareholders of a private limited company are not personally liable for the debts of the company. This means that if the company is unable to pay its debts, the shareholders’ personal assets are not at risk.
- Credibility: A private limited company is seen as being more credible than other types of businesses, such as sole proprietorships and partnerships. This is because it is a more formal business structure, and it is subject to more regulations. This can be a great advantage for businesses, as it can help them to attract customers and clients.
- Tax benefits: Private limited companies can enjoy certain tax benefits, such as a lower corporate tax rate. This can save businesses money on their taxes, which can be a great advantage.
- Ease of raising capital: Private limited companies can raise capital more easily than other types of businesses. This is because they can issue shares to investors, which can be a great way to raise money to grow the business.
- Transferability of shares: The shares of a private limited company can be freely transferred to other people. This can be a great advantage for businesses, as it allows them to grow and expand more easily.
- Perpetual succession: A private limited company has perpetual succession, which means that it can continue to exist even if the shareholders change. This can be a great advantage for businesses, as it provides them with more stability and continuity.
- Professional image: A private limited company has a more professional image than other types of businesses. This can be a great advantage for businesses, as it can help them to attract customers and clients.
Disadvantages
- Cost: The cost of forming a private limited company in India can be relatively high. This is because there are a number of legal and regulatory requirements that need to be met.
- Compliance: Private limited companies are subject to a number of legal and regulatory requirements. This can be a burden for businesses, as they need to ensure that they are compliant with all of the relevant laws and regulations.
- Reporting requirements: Private limited companies are required to file annual reports with the government. This can be a time-consuming and burdensome process.
- Audit requirements: Private limited companies are required to have their financial statements audited by a qualified auditor. This can be an additional cost for businesses.
Conclusion
Starting a private limited company in India can be a complex process, but it can be a great way to protect your personal assets, raise capital, and grow your business. If you are considering starting a business in India, I encourage you to consider incorporating your business as a private limited company.
