Private limited Company- Most Suitable for Startups
Becoming an entrepreneur is a dream of almost every person at least once in his lifetime. Private Limited Company startups not only brings your dream into reality but also gives you wings to fly!
The first step on the ladder of making your business successful is choosing the right business vehicle. For choosing the right business structure there are several factors to be considered like capital, liability, funding etc. With so much to consider, it is usually not possible for you to know the right option. Thus, it is highly advisable for you to seek professional guidance in order to build a perfect foundation for your ideas. With this article, we will throw a light on the benefits associated with the private limited company.
What is Private Limited Company?
Before moving forward it is imperative for you to understand the meaning of private limited company startups. Private Limited Company is a privately held business that can be incorporated with minimum 2 and maximum 200 members. It offers the benefits of limited liability to members with a perpetual succession of the business.
Do you know that in India 8000 private limited companies are registered whereasonly 900 LLP’s are registered on an average monthly basis? Corporations prefer Private Limited Companies over other legal entities due to the following reasons-
Limit on Liabilities
Due to the diversification of the economy, losses are an unavoidable part of any business. Thus, it would be prudent of you to choose an option that puts a limit on your liability and protect your personal assets. One of the major benefits that private limited company offers is of limited liability. That means,your personal assets cannot be used to meet the liabilities of the company.
Building business Reliability
Credibility is something every person dealing with the company looks for. When you get registered with Ministry of Corporate affairs you get a legal structure with it. That makes it easier for you to build customer trust, take credit from vendors and open a company’s bank account.
Moreover, the complete data of a company registered with MCA, like the name of the company, date of incorporation, registered office address, the status of the company, and other information can be reviewedby any person on the publicly searchable database. This infuses the sense of confidence in customers and helps in authenticating the company presence.
Separate legal entity
In eyes of law, the identity of the private limited company is completely separate from the identity of its owner. It was observed in the famous case of Salomon v Salomon & Co Ltd (1897) that the individual member can act in his sole capacity and is not liable for meeting the liabilities of the company.
For the long-term success, it is very important for every entrepreneur to look out for the opportunities and take a first mover advantage/take advantage of the first move. Unlike the proprietorship or partnership business structure, the private limited company provides certain freedom to you. That in turn, gives you a competitive edge in the business world.
It is a world established fact that the employees play a crucial role in the growth of the company. Do you think in today’s competitive era salary is enough to retain the employees? We don’t think so. It is a well-proven fact that to attract and retain the good talent it is important to provide certain lucrative benefit. One such benefit is of the stock option. By issuing stock to the employees you give them the feeling that they are the important part of the organization. This feeling fills the employee with motivation; as a result, they work harder.
The private limited company is an only business vehicle that offers the ownership and ESOP plan to its employees.
Who would like to miss the opportunity of having international collaborations? I believe that none of the business units desire to restrict their way for foreign Funding. If you desire to take your business to an international level then the private limited company is the best option for you. On the contrary to other forms of companies like proprietorship, partnership, and limited liability partnership, the Private limited company allows Foreign direct investment of up to 100 % through automatic route. This means that a foreign person can invest in your company with the prior government approval.
A private limited company is incorporated with the perpetual existence. That means all the member of the company may die, but the company would never die! This type of business vehicle enjoys the uninterrupted existence until it is legally dissolved.
Ease of raising funds
In order to efficaciously start, maintain, and grow a business it is crucial for every business entity to raise adequate funds. In contrast to other business structures, the private business unit can raise funds from its members, relatives and friends etc. This fund can be utilized by the company to fruitfully sustain in the continuously evolving economy.
Hassle-free exit plan
While obtaining company registration very few entrepreneurs give due consideration to an exit plan. However, it must be understood that a perfect exit plan can help you in being rewarded for all the sweat and hard work you have put in.
Private limited Company gives you the perfect exit proposal. You can just simply transfer the shares of the company to other entity without a much hassle. Thus, the private limited company not only gives you best entry plan but it also ensures your swift exit.