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Companies Act

Benefits of Private Limited Company

March 21, 2023 by Team Instabizfilings

Blog Details

Do you desire to start a business in India? If so, one of the most vital steps to take is the registration of the company. Registration as a Private Limited Company (PLC) is the popular choice for most entrepreneurs in the country.

 

Definition

 

A PLC is a kind of business structure in which the liability of shareholders is limited to the quantum of capital they have invested in the company. This implies that if the company faces insolvency, there is no risk of loss of personal assets. A PLC has a separate legal status apart from the shareholders and can own assets, enter into contracts on its own, and can sue and be sued.

 

Benefits

 

A PLC is the most preferred form of business and is popular with start-ups. It is mandated that there should be at least 2 shareholders, and the maximum number is 200. Pvt Ltd Company registration provides many benefits. Some of these are as follows:

 

Limited liability

 

The limited liability of shareholders is the first and most important benefit of a PLC. By this, it is implied that shareholders or owners of the company do not have personal liability to incur the debts of the PLC. Their responsibility is limited to the quantum of shares they own in the company.

 

To reap the benefits of limited liability, shareholders should comply with all laws. Limited liability provision covers the ever-present risks of running into losses by a company. As such, such limited liability protection assures and encourages entrepreneurs to undertake risks and progress in their entrepreneurial journey sans the risk of losing everything and the related uncertainty and fears.

 

Perpetual succession

 

This feature of a PLC implies that the company is unaffected by the death of any owner or the transfer of shares to any new persons. The main benefit of perpetual succession is that a company will remain in existence, no matter how many shareholders, officers, or directors leave or join the company. Such a scenario is possible when the company is registered only as a PLC.

 

Easy to transfer ownership

 

Matters connected with transferability or share of ownership cannot be handled by unregistered business entities. It is tough to transfer proprietorships which are extensions of the proprietor and partnership firms with undefined assets.

 

But a PLC is a separate legal entity possessing defined liabilities and assets, separate from its owners. This makes easy the process of transferring a registered business and sharing its ownership. The shares of the company are regarded as movable property and can be transferred easily.

 

Shareholders are able to transfer their shares to any others merely by executing a form of share transfer and supplying the share certificates of the company. But such transfer of shares should be approved by the company’s Board of Directors.

 

Option of selling the business

 

The PLC can be sold completely transferred; the total process of sale is pretty simple and straightforward. Shares of a company can be transferred. There have been several exits for high premium prices to potential purchasers of the company.

 

Own personal property

 

Similar to a natural person and being an independent legal entity, a PLC can transfer, enjoy, own, possess, buy, or sell property rights to anyone. Additionally, no separate or personal claim can be made upon the company property by its shareholders while the company continues to exist.

 

Tax benefits

 

As for the tax rates imposed on PLCs in India, they are some of the least in the world. In the case of manufacturing companies, the rate of tax is 15%, and as regards every other type of company, like services, trading etc., the rate of income tax is only 22%. Note that there are some minimal cesses and surcharges imposed apart from these rates of income tax of corporates.

 

Ease of raising money

 

To implement the vision of start-ups, such businesses always need funds to carry out their operations and to expand further. The investments required for the long term mostly come in the form of debt or equity.

 

Since partnership firms (LLP’) and sole proprietorships are unregistered, it is tough to raise equity funds for such businesses. The main reason is that most banks and other financial institutions are reluctant to lend money to business entities that are unregistered. Therefore, experts recommend that you should register your business to raise funds for the same.

 

To raise money for sole proprietorships or LLPs is a cumbersome and complex task. In contrast, a PLC can raise investment from a closed group of persons numbering 200 shareholders through the straight forward process of a private placement.

 

The PLC may either do allotment of fresh shares to angel investors or other investors at a price higher than the valuation of the stock. Because the Company’s Act stipulates a precise and clear method for raising funds, this is the popular mode for most start-ups in the country.

 

FDI (Foreign Direct Investment)

 

Conventionally, the FDI is in the form of a company business, and Indian companies can allot new shares to overseas investors, enter into a joint venture, or create a new company for a particular objective. With regard to FDI and funding, The PLC is the best option.

 

Separate legal entity

 

Being separate legal entities, PLCs enjoy the benefit of carrying out legal proceedings and to initiate lawsuits in courts of law. Similar to any other kind of person, since the PLC is an independent legal entity, it can start legal actions versus any other persons and can also be sued in a court of law.

 

The PLC is regarded as a separate legal entity that is a creation by law and is different from its officers, directors, and owners. The company was formed after a complicated process of company incorporation as per the provisions of the 2013 Company’s Act in order to gain the certificate of incorporation of the company.

 

Simple to run and enjoy prestige

 

Setting up a PLC is often the easiest and quickest business structure, to begin with. Also, the transparency of running a PLC business offers a level of assurance for potential customers, partners, and investors.

 

In sum, registration as a PLC is one of the popular options for entrepreneurs seeking to launch a business in India. This action offers a host of benefits, such as a separate legal identity for the company, limited liability for owners (shareholders), capacity to raise lots of funds, high credibility, and perpetual existence.


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