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 partnership, 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.

However, a PLC is a separate legal entity possessing defined liabilities and assets, separate from its owners. This makes 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 can 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 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 lowest 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 unregistered business entities. 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 straightforward 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. Regarding FDI and funding, The PLC is the best option.

Separate legal entity

• Since PLCs are legal entities that operate as different companies they also have the added ability to undertake legal action and launch lawsuits in Courts of law. As with any other kind of person since the PLC is an independent legal entity it is entitled to initiate legal proceedings against any other persons and may also be sued at law.
• The PLC is recognized as a legal person that is of its nature a legal creation and is distinct from its officers, directors and owners. It was established after going through a number of complex procedures of company incorporation in accordance to the 2013 Company Act in order to acquire the certificate of the company.

Simple to run and enjoy prestige

• Indeed, organization formation is particularly straightforward and fast when starting a PLC. However, the fact that a business can be run as a PLC also provides a certain measure of comfort for customers, partners and investors.
• Therefore, in general registration as the PLC is one of the successful models chosen by the entrepreneurs who wants to open a business in India. This action makes available many advantages for a company: it has own legal entity; owners or shareholders have limited responsibility; the company may collect as much money as it is possible; it has high reputation; it is an immortal creature.

Disclaimer

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.

Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.