By Eric Over the last few years, India, which boasts the third-largest startup ecosystem in the world, has seen a rapid increase in the number of newly founded enterprises across several sectors. The majority of these companies begin by serving the needs of their local clientele on a lesser basis. They report poor turnover and earnings, which deters investors from giving the companies the necessary funding. Nonetheless, entrepreneurs always want to succeed in their fields and raise the necessary funds for their companies’ development and expansion. Therefore, it is often advised that they incorporate so they may take advantage of the advantages of a private limited company. Read below to know how fees for registration of private limited company has its advantages-
1.Limited Owings
Restricted liability
In contrast to partnerships and proprietorships, private limited corporations are distinct legal entities that are independent of their stockholders. The shareholders are not responsible for all of the company’s losses, nor do they keep all of the profits. Prior to the company’s creation, all shareholders unanimously agreed upon a predefined ratio that would govern how the company’s profits and liabilities would be divided among them. Limitations on obligations for shareholders provide investors protection from financial ruin during difficult times, in addition to being an attractive feature. As a result, this is among the top advantages of private limited companies in India.
2.Appealing to Capitalists
Investors are drawn to private limited companies because of their strong development potential and track record of achievement in the Indian market. A Private Limited business also sounds more credible to entrepreneurs hoping to succeed in their particular sectors since it is a well-known name in both the local and Indian markets.. Similar instances abound in both Indian and international markets. For this reason alone, a private limited company is regarded as the ideal corporate form for new ventures.
3.Favored by financial institutions and banks
corporations classified as private limited corporations are required by law to register with the Ministry of Corporate Affairs’ Registrar of Companies. Along with a number of other provisions mentioned in statutes like the Trademark Act, Names and Emblems Act, Income Tax Act, GST Act, EPF Act, ESIC Act, Shops and Establishment Act, Contracts Act, SEBI Act, etc., the Companies Act 2013 and the Company Incorporation Rules 2014 primarily govern the registration process.All of these acts’ registrations, approvals, certifications, and licenses aid the government in keeping databases that are available to the public and include pertinent data about the firms. Because government databases include information on private limited firms that is 100% genuine and validated, this raises their trustworthiness. As a result, creditors and investors may continue to feel secure knowing that their money is in capable hands.
On the other hand, unregistered firms, such as proprietorships and partnerships, undermine their legitimacy since their existence is not recorded in any official databases or registers. Being reputable with investors is one of the main advantages of a private limited company.
- Unending Existence
Since a corporation has its own legal identity, its existence is independent of that of its owners. This implies that a private limited business will endure even in the event of a shareholder’s death, resignation, retirement, removal, bankruptcy, or established insanity. It won’t vanish until it’s intentionally destroyed or damaged. A business may have up to 200 shareholders at any one moment, which is the reason it can continue indefinitely. In addition, if they were to leave the firm, it would be simple to transfer their shares to new owners.
In contrast to commercial entities such as proprietorships or partnerships, where the business and its owner are considered to be one and the same under the law, a private limited company has this attribute. When a partner or owner passes away, their individual enterprises must dissolve right away. Furthermore, a firm’s partnership deed immediately ends with the death of a partner. This benefit, which is one of PVT LTD company’s numerous advantages, guarantees the company’s perpetual existence.
- Taxes on Income Are Low
The Income Tax Act’s Section 80IAC grants shareholders of startups established as either private limited companies or limited liability partnerships (LLPs) three consecutive financial years of tax vacations. One of the biggest advantages of a private limited company is the less financial burden of tax and legal compliances.
6.Simple to apply
With the launch of the SPICe+ application, the business registration procedure is now entirely online. The online program SPICe+ / INC 29 allows users to register a business and access ten additional services provided by the Ministries of Corporate Affairs, Labor, and Finance. These include creating a current bank account for the business and submitting applications for DIN, PAN, and TAN as well as registrations under the Shops & Establishment Act, GST, PT, EPF, and ESIC. Additionally, the RUN form for the company’s name reservation is included in PART A of the form, which may be filed separately or in conjunction with the whole application. The amount of paperwork, effort, and money required to incorporate a private limited company in India has undoubtedly decreased as all these papers are integrated into one. One of the main advantages of a private limited company is the formation procedure, which is straightforward, quick, and entirely online.
- Shareholders’ low minimum and high maximum limits
In India, registering and initiating activities of a private limited corporation just needs two shareholders. Smaller businesses benefit from this since they often have a harder time attracting investors, particularly in the early stages of their existence. Furthermore, since there is no upper limit on the number of shareholders (200), businesses will have the opportunity to raise significant sums of money for their latter phases of operation.
This kind of flexibility is extremely helpful for firms that want to launch locally but have big plans to go worldwide without having to worry about money constraints. In contrast, a public limited corporation must have at least 7 shareholders in order to begin operations, however there is no upper limit. Consequently, even if public limited companies are free to grow to any size, the need to start off big is likely to deter new businesses from deciding to adopt public limited companies as their legal structure.
8.There is no required minimum or maximum capital
The minimum capital requirement for private limited businesses in India was reduced from one lakh to zero by the government. This implies that a firm with no authorized capital may also register as a private limited company. This keeps startups from starting off at a disadvantage to more established companies since they find it difficult to get money in the early stages of their operations. Furthermore, private limited corporations are unrestricted in their ability to raise capital, meaning they may raise as much as they need.
- The appointment of an audit committee is not required
In order to enhance the caliber of the Board of Directors’ judgments about the company’s financial management, Section 177 of the firms Act requires the Board of Directors of all publicly traded firms to establish an audit committee. In addition to raising the expense of compliance, the committee’s required appointment carries significant financial consequences for non-compliance. Thankfully, since private limited firms are neither listed or have their shares owned by the public, they are not subject to this legal obligation. Furthermore, three directors are required to create the committee, whereas two directors are required to incorporate a private limited company.
- The ability to sue
Private limited businesses are legally formed organizations that have the ability to sue third parties in a court of law to settle disagreements about a wide range of issues. All company-agreed papers, such as contracts, agreements, and memoranda, will be admissible in court. Because it does not have this privilege, an unregistered entity is unable to defend its interests in the event of a dispute with third parties.
In summary
Startups sometimes have to make difficult decisions about whether or not to incorporate their companies. This is mostly because incorporation processes and associated compliances are expensive, and startups often cannot afford them when they are just starting out. Nevertheless, they often overlook the fact that the costs of incorporation are much outweighed by the drawbacks and penalties associated with not doing so. Regarding legal status, startups are allowed to establish only as partnership firms, limited liability companies, or private limited companies. A pvt limited company registration is the most practical choice among them, particularly when contrasted with the other two. To provide you a complete grasp of the advantages of private limited businesses in India, the arguments for the same have been covered above.
