Business owners begin with the fundamental belief that founding a Private limited company in India provides significant operational and tax benefits and the essential “limited liability”. It protects your personal assets from creditors in the case of a business failure. Therefore, it never puts the company owner in danger of personal bankruptcy.
But is that all? MPVD, a provider of services owing to chartered accountancy and company formation in India, highly recommends private limited company formation for many more reasons than a reduced liability. Learn about these benefits and considerations in this blog.
Best Aspects of Private Limited Company
With the startup ecosystem thriving across the country, there is a diverse spectrum of business models that require strategic investments, long-term strategy, hiring people, and going global.
Where companies require an advantage over public firms in this area, establishing the limited company, gives them a better edge at operating independence and flexibility. Below are some of the key aspects of it:
- Recognition as a Separate Legal Entity: Private limited businesses, as distinct legal entity, can possess property, engage in contracts, and sue or be sued in their own name. This designation lends credibility and durability to the company.
- Tax Advantages: Private limited corporations may benefit from tax benefits such as deductions for company costs, reduced corporate tax rates, and the opportunity to carry forward losses.
- More Opportunities to Raising Capital: Private limited companies can issue shares to raise capital from investors or banks, allowing them to grow their firm or embark on new initiatives. This structure also allows for ownership transfers through the purchase and sale of shares.
- Perpetual Existence: Pvt’s and LLPs continue to exist, even if the company founders, owner or shareholders exit the company or pass away. This maintains the business’s continuity and stability because its activities are not reliant on the longevity of the personnel engaged.
At the heart of it all, a private limited company may boost a firm’s reputation and integrity in the eyes of customers, suppliers, and potential partners. It demonstrates a commitment to formal processes, legal compliance, and a higher level of professionalism.
When Sole Proprietorship Is Actually Better Than Private Limited Company
When you are starting a business, it is rational that you’d like to choose the simplest and most affordable type of company formation. That is why so many people prefer a sole proprietorship.
Partnership firms make a safer bet as independent entities for traditional business models where business assets are separated from the business owner’s personal assets. Sole proprietorships, however, are more practical and straightforward.
So what kind of businesses should go for sole proprietorship? These are businesses that are related to the person and do not essentially operate through a partner. Below are some examples:
- Grocery Store and Variety Store Owner
- Home-based bakery
- Photography service providers
- Makeup service providers
- Franchise business
- Tea-stall owner
- Tutors and personal education providers
As a leading chartered accountancy firm where we help several businesses to register a company in India, we often come across business owners choosing private limited company formation just because they heard everyone say it. So many times, it is the right decision. But things going right shouldn’t vouch for uninformed decisions.
Decision-makers need to be aware of their choices. It can also be a good decision to start a business as a sole proprietor and then convert it into a private limited company when the business is starting to expand.