There are many forms of businesses that entrepreneurs today can select to carry on their business activities. Private limited Companies, Limited Liability Partnerships, Partnership Firms, and Proprietorships etc, are a few of them. Each type of business model has its own unique set of features that help you in deciding which one is the best suitable for you. In this article, we will discuss the benefits of a Private Limited Company Registration in India.
Benefits of Private Limited Company Registration
Usually, Private Limited Companies are one of the most commonly opted types of business. The many benefits are the reason. The following are the benefits of Private Limited Company Registration:
Limited Liability of Directors
In most private limited companies the liability of Directors is limited to the extent of their shareholding in the company. This is a ‘company limited by shares. There are two other classifications based on the limitation of liability in Private limited company registration, namely:
- Company limited by guarantee- here the liability of the shareholder is not up to his/her shareholding but up to the amount that he has declared as his guarantee; and
- Unlimited Company – here the liability of all shareholders is unlimited.
Usually, all PLCs are companies limited by shares. Which is very beneficial for the owners in protecting them from the losses that are incurred in business operations.
Separate Legal Existence
The private limited company registration process is done through the Ministry of Corporate Affairs and the Registrar of Companies. Once the registration process is complete, a certificate of incorporation is issued. All companies having their COI are said to have gained a separate legal existence. As a result of this, a private limited company becomes equivalent to an artificial person, who holds various legal rights. The following legal rights are available to all private limited companies as an artificial person:
- The right to sue and be sued;
- The right to enter into legal agreements; and
- Buy, own, and sell the property.
Perpetual Succession
Since the private limited company is a business that exists entirely separately from its owners, it has a perpetual succession. This means that the company will still exist even after the death of one or more of its owners. In any other form of business, such as a proprietorship firm, which does not have a separate legal existence, the firm will become inactive with the death of its owner. However, in the case of a private limited company, it will keep on existing.
Up to 200 shareholders allowed!
Shareholders are usually owners of a company. They bring in capital by way of the purchase of shares. Further, a minimum of 2 shareholders are mandatory to register a private limited company. However, the number can extend up to 200. Thus as a PLC you can raise funds from up to 200 shareholders.
Get funds in the form of Equity
Private Limited Companies have the additional benefit of being able to raise funds through the issuance of equity or preference shares. Funding in private limited companies includes following modes:
- Private placement of shares;
- Angel investments;
- Crowdsourcing;
- Venture capital funds; and lastly
- Friends and family.
Raising funds through equity is one of the major reasons of the popularity of private limited companies. This agility to raise funds through equity helps private limited company owners in the following manner:
- Increases the capital;
- Limits liabilities;
- Certain venture capital firms and angel investors include high-net-worth individuals that can not only help in providing capital but can also help young entrepreneurs by advising them on carrying out business operations.
- Market research; etc.
Get DPIIT recognition and its many benefits
DPIIT recognition helps in growing the startup ecosystem in India. It further drives the youth towards starting businesses and generating wealth and employment in the country. DPIIT recognition is available to all eligible startups, and the first eligibility criteria are that it needs to be either one of these modes of a company:
- Private limited company;
- Limited Liability Partnership; or
- A registered partnership firm.
Hence, if you have only recently obtained private limited company registration you can avail the following benefits of startup India registration:
- Get access to funding under the startup India seed fund scheme;
- Angel Tax Exemption;
- Exemption under section 80 IAC of the income tax act;
- Gain the trust of the consumers and investors;
- A chance to list the products on the government e-marketplace (GeM) portal; and
- Lastly, rebate in IPR filings.
Encourage employees by creating an ESOP pool
ESOP stands for the Employee Stock Option Plan. New businesses today opt for creating at least a 5% of ESOP pool for their employees. However, you can only issue ESOPs in Private limited companies. Benefits of ESOP are –
- Raises capital; and
- Motivates employees to work efficiently.
Hence, as a registered private limited company, having an ESOP pool is always beneficial to keep the employees motivated and it increases the retention rate for employees.
Conclusion
Now that we know the benefits of registration of PLC in India, it is pretty simple to understand how it has become one of the most popular forms of business in India. You can get company registration in a month and start availing all these benefits!
