The private limited company is the 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-
- Limited Liability of members- Unlike many other forms of companies the liability of members of the private limited company is limited to their only. Thus the personal assets of the members are secured from any charge.
- 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 the 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.
- 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.
- Business credibility- The private limited company is registered under the Companies Act 2013 and has a legal structure which creates its credibility amongst the people. Thus the company can expand more easily.
- Advantages in tax- Private limited company pay taxes on their profits and not on their income. Thus the tax liability is lesser as compared to other forms of companies.
- 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 business.
- Issuing ESOP and Sweat equity Shares- The private limited company is empowered to issue sweat equity shares and provide employee stock option to its employees. This helps in motivating the employees and increasing their morale.
- 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 much 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 the business structure before opting for it.