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When it comes to registering your business, there are various corporate structure options you can choose from. Among these, registering your venture as a private limited company can be most beneficial, especially if it’s a startup. A private limited company is defined as a privately owned small business that’s owned by a small group of shareholders or members. In contrast to public limited companies, a private limited company cannot publicly trade its shares on a stock exchange. In India, private limited companies are registered under the Companies Act of 2013. This article discusses why registering a private limited company is advantageous.
Chief benefits of registering a private limited company
Registering a private limited company in India offers the following benefits:
Assurance of limited liability
One of the chief benefits of registering a private limited company is that the shareholders have limited liability in the company. In other words, setting up a private limited company allows you to protect your own personal assets from the debts of the company. The income and liabilities of the company are distributed among shareholders only to the extent of their contributions (investment in shares or guarantee provided). Therefore, in the event of a financial downturn, you do not risk losing your personal assets due to the company’s debts.
Creation of a separate legal entity
Registering a private limited company under the Companies Act essentially means creating a legal entity or ‘juristic person’ that is completely separate from its shareholders and members This gives the company the power and responsibility of managing its assets and liabilities. A registered private limited company has the power to hold property, conclude contracts, and take/be subject to legal action. Since the company is recognised as a separate legal entity, its shareholders and company members have no liability towards the debts incurred by the company.
Ease in raising capital
For companies trying to grow and expand, having access to finance is critical. Registering a private limited company also simplifies the process of raising capital for a company. Private limited companies have the power to issue shares to existing shareholders or through private placements, facilitating equity funding. Since these companies offer limited liability protection, shareholders are protected against the liabilities of the business which encourages investments. This makes private liability companies attractive options for investors. As per current regulations, there is no minimum capital requirement for private limited company registrations in India. This means, startups can get registered as private limited companies even without authorised capital. This keeps start-ups protected as they arrange for capital in the initial years. Moreover, since there is no cap on the maximum capital, the company can gather as much investment as needed.
Boost credibility
If you wish to register your company as a private limited venture, you must do so with the Registrar of Companies under the Companies Act of 2013. Registering your company provides it with a seal of credibility. Anyone can check data about the company on the Ministry of Corporate Affairs portal. When seeking finance through business loans, working capital loans, and lines of credit, this credibility also gives them preference among banks and NBFCs. Financial institutions can easily verify the details of a registered private limited company on official government portals to understand its structure and offer funding based on trust and transparency. Registration also allows you to participate on various e-commerce platforms and list your products on online marketplaces where registration is needed for onboarding.
Tax benefits
Registering your venture as a private limited company also offers attractive tax benefits. As per Section 80IAC, shareholders of startups registered either as a private limited company or LLP can enjoy tax holidays for three consecutive financial years on profits as long as the company’s turnover does not exceed Rs. 25 Crore in a given fiscal year. Tax savings allows you to refuel the profits into growing your company.
Ensure perpetual existence
By registering your company as a private limited firm, you ensure its perpetual existence. This means that the company continues to exist despite the death or resignation of its management or directors. Since the company is a separate entity, it continues to exist, until it is legally dissolved.
Conclusion
Registering a private limited company gives it a legal seal of approval. This brings various perks to its members and shareholders in terms of limited liability, and protection of personal assets. It also simplifies the company’s access to funding since banks prefer offering loans to registered companies.