What Are The Benefits of Private Limited Company Registration?

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What Are The Benefits of Private Limited Company Registration?

The private limited company is a business structure formed by a minimum of two members and a maximum of 200 members. This form of business structure can be opted by any size of the firm be it small, medium, or large scale business entities. The shareholder of the firm may operate the business themselves and act as the directors or they may employ some other persons to manage the affairs of the company. The private limited company provides a legal structure to the entity with numerous benefits like limited liability and separate legal entity etc.

Following are the benefits of a private limited company-

1. Limited Liability of members

Unlike many other forms of companies, the liability of members of the private limited company is limited to them only. Thus the personal assets of the members are secured from any charge.

2. Distinct legal identity

One of the crucial features of this form of company is the distinct legal identity of the company from its members. Companies act 2013 recognizes the private limited company as a separate legal identity from its members. Due to this feature, the private limited company is empowered to own property under its name. Further, the company can sue, and also it can be sued under its own name due to this very same feature.

3. Continued Existence

As the legal identity of the private limited company is separate from its members the life of the company does get affected by the life of members. Thus the death or inability of the members does not end the life of the company.

4. Business Credibility

The private limited company is registered under the Companies Act 2013 and has a legal structure that creates its credibility amongst the people. Thus the company can expand more easily.

5. Advantages of tax

Private limited companies pay taxes on their profits and not on their income. Thus the tax liability is lesser as compared to other forms of companies.

6. Less number of members required

In order to incorporate a private limited, only two shareholders and two members are required. This helps aspiring entrepreneurs to easily set up their businesses.

7. Issuing ESOP and Sweat equity Shares

The private limited company is empowered to issue sweat equity shares and provide employee stock options to its employees. This helps in motivating the employees and increasing their morale.

8. Foreign direct investment

The Private limited company is the sole business structure that permits 100% foreign direct investment. This implies that foreign companies can invest in a private limited company without prior government approval.

With this many benefits, the private limited company is surely a must-consider option for all startups. However one should also become familiar with the disadvantages associated with this form of business structure before opting for it.

Also Read: Six Types of Company Registrations in India

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