Forming a private limited company is a popular choice among entrepreneurs looking to start a business in India. A private limited company is a type of business structure that's registered under the Companies Act, 2013. In this blog post, we'll explore the benefits of forming a private limited company.
Limited Liability
One of the main advantages of forming a private limited company is that it offers limited liability protection to its shareholders. This means that the personal assets of the shareholders are protected in case the company faces any legal issues or debts. The liability of the shareholders is limited to the amount of capital they have invested in the company.
Separate Legal Entity
A private limited company is considered a separate legal entity from its shareholders. This means that the company can enter into contracts, own assets, and sue or be sued in its own name. The company's existence is not affected by the death or departure of any of its shareholders.
Raising Capital
A private limited company can raise capital by issuing shares to investors. This makes it easier for the company to raise funds for its expansion plans or new projects. Additionally, the company can also borrow money from banks or financial institutions using its assets as collateral.
Credibility
A private limited company is perceived to be more credible than other business structures such as sole proprietorship or partnership. This is because the company has a separate legal entity, a registered office, and complies with legal requirements such as filing annual returns, conducting regular board meetings, and maintaining proper accounting records.
Tax Benefits
A private limited company is eligible for various tax benefits such as deductions for expenses incurred for business purposes, depreciation on assets, and lower tax rates for corporate income. Additionally, the company can also distribute dividends to its shareholders, which are taxed separately as per the Income Tax Act.
Transfer of Ownership
The ownership of a private limited company can be easily transferred to other parties through the sale or transfer of shares. This provides an exit strategy for the shareholders who want to sell their stake in the company.
Conclusion
Forming a private limited company offers several benefits to entrepreneurs in India. It provides limited liability protection to its shareholders, allows for easy raising of capital, enhances credibility, offers tax benefits, and provides an exit strategy for shareholders. However, it's important to note that forming a private limited company also requires complying with legal requirements such as filing annual returns, conducting regular board meetings, and maintaining proper accounting records. Therefore, it's advisable to consult a legal professional or a company registration consultant before starting the process of forming a private limited company.
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