Starting a business is an interesting and rewarding experience and almost everyone wants to run a business these days. One of the important decisions while entering into a business venture is the selection of a business entity. It could be a proprietorship, partnership firm, Limited Liability Partnerships or limited company. The private limited company is a successful business model.
A private limited company is a type of privately held business. Forming a limited company allows the entrepreneur to keep their assets and finances separate from the business. There are many benefits of a private limited company:
- Limited liability
A private company is treated as single entity i.e. the company is responsible for all the debts and if anything happens to the company, members associated are not personally affected. Liability for repayment of debts and lawsuits incurred by the company lies on the company and not on the owner.
- Tax advantage
One of the advantages of running your business as a private limited company is that you are likely to pay less tax than a sole trader. Limited companies pay corporation tax on their taxable profit and get excused from higher personal taxes.
- Separate legal entity
A private limited company has a distinct existence. The company exists as a juristic person established under the Act. A juristic person is a person who is not natural or human being. The limited company acts as a real person who has all the property in hand and has sole right to control, manage and dispose of the property. A private limited company is separate from its members, it is not the property of its shareholders and stakeholders cannot claim upon company’s property.
Funding is crucial for starting a business, growing and maintaining the same. A business might need fund from self, friends, and family or by debt and equity. Unlike proprietorships, partnership firms, and Limited Liability Partnerships which cannot issue shares, limited companies can issue shares and attract equity funding. As per companies act 2013, a company can sell shares to the public or can accept deposits from the public and can raise money easier than other business structures.
- Transfer of shares
Transfer of shares in a private limited company is easy compared to the proprietorships and partnerships. The shares of the company tend to be movable property. It is easy to subscribe or leave the membership of a company and also to transfer the ownership.
- Capacity to sue and get sued
A private limited company can issue legal proceedings against a suit in a court of law. Like an individual can bring legal action against another person, company as a juristic legal person can also sue or can be sued in its own name.
- Business continuity
A company has perpetual succession that is they enjoy permanent succession as the company is its own legal entity. Shareholders and employees/members of the company do not affect the company’s work and continuity even if they leave. The company is unaffected by the death or departure of any of the member and the shares are distributed among other members. The company continues to be in existence and this is a very important characteristic of a private limited company.