Top 5 Benefits of a Private Limited Company

Are you wondering why entrepreneurs are often advised to register their company as a Private Limited Here’s why?

Let’s start from the basics. So, there are two types of Registrations available in India. One can be termed as a Legal entity and the other one the Non-legal entity. Under Non-legal entity falls Sole proprietorship and Partnership. However, the catch is, under the Non-legal entities, the liabilities are very high. Let’s see why Sole Proprietorship incurs high liabilities.

Reasons why Sole Proprietorship is highly liable: 

    1. For example, if a company is registered as a Sole Proprietorship, the owner of the company takes 100% of the company stakes and is solely responsible for all its decisions. Therefore, sole decisions would increase liabilities as this structure does not allow other stakeholders to be present.

    2. A Sole Proprietorship doesn’t need registration with the Ministry of Corporate Affairs which is termed as the Central Government registration.

    3. When you are Sole Proprietor, expansion of your business into other cities and states becomes difficult as this registration comes only under the State Government.

    4. The credibility of your business will be very low. As other businesses which have Pvt. Ltd will have more advantage.

    5. Getting funding or investors for your business will also be very difficult. For example, if you are a legal consultant and you are going to give a business pitch to your clients, there will be no means for your investor to share the stakes of the company with you, as you hold its stakes completely. So investors wouldn’t prefer to fund your company.

Now, that you know why Sole Proprietorship and Partnership companies that come under the non-legal entity are highly liable, let’s see the benefits of registering a company as a Private Limited.

Private Limited Company Registration along with One Person Company, Limited Liability Partnership etc come under the legal entity. However, among other legal entities, Private Limited has the most number of benefits.

Top 5 Benefits of a Private Limited Company:

    1. A Private Limited Company registration comes under the MCA or the Ministry of Corporate Affairs which in turns comes under the Central Government- a unified government wherein the liability will be very less.

    2. In case a businessman runs into a loss, his personal assets cannot be touched under the Private Limited company registration. Only his company’s assets will be sued. Individuality will be saved.

    3. A company under Private Limited is treated as an individual entity. Here you can get loans for the company and explore the business market. If there is a liability, it will be for the company. Because the company has an account, a PAN card and the company is a sole legal entity.

    4. Under Private Limited it’s easy to expand to other cities. Therefore, companies under this registration can easily have branch offices in other cities in the country as it comes under the folds of the Central Government.

    5. Credibility is very high under this category.

    6. Taxation Relaxation:

For example: When you look at taxation for a sole proprietorship, since it is an individual who is running a business, he has to pay the company tax as his own individual IT filing. There will be different slab segregation between individual IT filing and Company IT filing. For example, currently, the slab is 5 lakhs. If you exceed more than 5 lakhs, you are entitled to pay tax to the Indian Government according to the Income Tax Act. However, under Private Limited, IT filings will also have to be made.

But the difference is, until and unless the company makes a profit out of the business, taxes needn’t be filed. Say the company is making a profit. From the profit, you have to file 30% to the income tax department. However, if you run a Private Limited company, and you make 10 lakh rupees but you have spent 11 lakhs, say for company infrastructure, employee benefits etc, then obviously it is a loss and therefore, you needn’t pay any tax.

    7. Under Private Limited registration, you can get business loans very easily.

    8. Private Limited is always a brand. So what exactly is a brand? When you sketch a business plan you talk about the exposure of the market, your customers, your competitors, their future things through technology. These things can be termed as a brand.

Now that you know why Private Limited Company registration is the preferred choice for many young entrepreneurs, here is how you can register as one.

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