Registering a private limited company is one of the most popular ways of starting a business in India. It has various tax and regulatory advantages.
A Private Limited Company is the most popular and prevalent corporate legal entity which is privately held for small businesses. The Private Limited Company registration is governed by the Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014. A minimum of two shareholders and a maximum of up to 200 are required to register a Private Limited Company. A natural person can be both director and shareholder, whereas a corporate legal entity can only be a shareholder. Foreign nationals, foreign corporate entities or NRIs can also be directors and/or shareholders in a Private Limited Company, making it the preferred choice of entity for foreign promoters.
Why Private Limited Company?
A Private Limited Company being treated as an artificial person can obtain, own and alienate property such as building, machinery, land, factory, etc. in its name. Hence, no individual shareholder can stake a claim upon any property of the company.
Minimal Requirements for a PLC Registration
In a private limited company, only the initial amount invested in starting the business would be lost; which means that the director’s personal property will be safe. In case of borrowed money for business establishment, the company, being a separate legal entity will be liable to repay debt.
As per the Companies Act, a Private Limited Company is a legal entity. Therefore, it works as a corporate entity as well, for its activities like opening of a bank account, hiring employees, etc. Thus, the members of a company have no personal liability for company’s debts.
Compared to One-Person Companies (OPCs) and LLPs, a private limited company has more options for taking bank loans (with the options of issuing debentures and convertible debentures always available along with it).
Until a Private Limited Company is legally dissolved by its members, the company ceases to wither. This is because the company in itself is a separate legal entity and the death or departure of any of its members in any kind doesn’t affect the company’s existence.
By transferring the shares in a company, the ownership of a business can easily transferred. This requires the consent of other shareholders.
A Private Limited Company has ‘perpetual succession’, that means, it has an uninterrupted existence until it is legally dissolved. As a company is a separate legal person, it is unaffected by death or other the departure of any member and it continues to be in existence irrespective of the changes in ownership.
A Private Limited Company can own, obtain enjoy and alienate property. Since it is an entity in itself, no shareholder can stake claim upon these properties of the company.
A Private Limited Company can raise equity funds in India. The Company has the potential to issue equity shares, debentures and accept deposits with RBI permissions. Also, financial institutions prefer funding to Companies rather than partnerships or proprietaries.