The most common scenario to get started a business in India, is either to register as a sole proprietorship or partnership business. However, in certain cases private limited company is a better option in comparison to a proprietorship or partnership form of business.
Remember, often instead of writing Private Limited, people may use “Pvt Ltd.” or “(P) Ltd.”, it’s all the same, don’t get confused.
However, in legal documents or in official correspondence, it is advised to mention “Private Limited”.
In this article we have listed 6 advantages of a private limited company in India.
Life of the private limited company and legal identity
Private limited companies have unlimited life spans.
This means, a private limited company will not cease to exist on the death of its owner or directors. Post incorporation, your company will have a separate legal identity by making the business separate from its shareholders or owners. It can own funds and other properties.
A private limited company’s existence will cease only when it’s formally dissolved or strike off from the government registrar.
Company will remain the same with the same privileges, estates and possessions after change in ownership or management. Change in the management does not affect the identity.
Owner’s liability is limited
For all business liabilities, owners or shareholders of a private limited company have limited liability to the extent of their share capital invested.
Which means, owners can limit their personal liability to the extent of the money invested as share capital.
In case of proprietorship or partnership, liability of the owner is unlimited for the debts of the business. Proprietors or partners are personally liable for the debts of the business or for any other business liability.
Credibility
Formation of a private limited company is a unique advantage which gives both suppliers and customers a sense of confidence to do business. In today’s competitive market, you can distinguish your business from others by forming a private limited company.
In India, you can register a unique name in the line of your business with the ministry of corporate affairs (MCA). A name resembling an existing private limited company is not allowed to get registered.
However, in case of a sole proprietorship or partnership business, there are no such restrictions if the concerned person does not have a trademark registration.
If you have registered your private limited company with a unique name, no one can register the same name or similar name for the same type of business as a private or public limited company with the MCA.
If you do not want your name or logo to be used by businesses in India, then better to go for trademark registration in addition to registration with MCA.
Information relating to the private limited company, such as name, date of incorporation, registered office address, financial statements, shareholders and percentage of shareholding and all other information are made available in a publicly searchable database at mca.gov.in. This will improve your credibility and authenticate the existence of business.
Easy to raise new capital
Funding is very important for the growth of a business.
A private limited company can raise capital by issuing new shares to either existing shareholders or new investors.
It’s easy in comparison to proprietorship or partnership business as share valuation can easily be done based on the past data and future estimations.
Dormant
Companies act 2013 is giving you the option of declaring a company as dormant or exit from business in case required.
As per the Companies Act 2013, if a private limited company has no significant accounting transactions during the previous financial year, then it can be converted as a dormant company which means its not carrying any business.
Dormant status can be very useful if you have an idea or name of the business but not yet started due to lack of capital or time.
Exit from business or transfer of business
Ownership of the business can also be transferred partly by just selling a certain percentage of shares of the private limited company as mutually decided to new owners instead of selling or transferring ownership of each and every asset individually.
If owners have decided to exit the business completely then it can be done by selling the entire stake in the private limited company to the new owner, which is difficult in case of proprietorship or partnership business structure.
Choice of your business structure has long term implications. We suggest you discuss your long term vision and business structure with a professional before starting. If you want to start a business for a long term with a clear vision of growth and stability then we suggest you register it as a private limited company.
Frequently Asked Questions – FAQs
How to register a private limited company in India?
Nowadays, registration with the ministry of corporate affairs (MCA) is very easy. You need to follow below mentioned steps to get your private limited company registered with MCA.
- Apply for name approval. You can give 2 choices in order of your priority. If the name is available for registration, it will be approved for which an email will be sent to your Email ID. Certificate of approval will be attached to the email.
- Get a digital signature certificate (DSC) issued in the name of all subscribers and directors.
- Draft memorandum of association and article of association. If you don’t know how to draft, then you can take help from a professional.
- Arrange all the documents required for registration.
- Process incorporation form online with MOA, AOA, and other documents as an attachment.
You are suggested to hire a practicing professional like a practicing chartered accountant or company secretary to help you in the entire registration process.
What are forms to be filed after registration of our private limited company?
A private limited company is required to file many forms based on the type of business and registrations taken. In general, a private limited company must file following documents every year;
- Income tax return with the tax department in ITR-6. It has to be filed on or before the due date of filing. For the financial year 2022-23 (assessment year 2023-24), you need to file income tax return on or before 31st October 2023. If you missed it, then you need to file your income tax return on or before 31st December 2023 by paying a late fee.
- Financial statements along with the auditor’s report has to be filed every year on or before 30 days from the date of annual general meeting.
- Annual return is to be filed within 60 days from the date of annual general meeting.
