Private Limited company is one of the most adopted forms of Business registration in India. Businesses often get attracted to the label of Private Limited and blindly go for it. While the fact is, before you chose to register your Business as a Private Ltd Company, it is vital to understand its advantages & disadvantages.
So in this blog, I will be discussing the significant advantages and disadvantages of a Private Limited Company and whether you should choose or avoid it.
So let’s get started quickly.
Advantages of a Private Limited Company
- A legal entity
This is one of the most significant advantages of a Private Limited Company. It stands s as a separate legal entity in the eyes of the law. It means it can have property, debt, and assets in its name. Moreover, the Directors and the Company are treated differently in case of any issue.
- Limited Liability
As mentioned above, a Private Limited Company is a separate legal entity. So the liability of its directors and members is limited. This liability is limited to the amount of unpaid share value or, in simple terms, the amount that they hold towards their shareholding.
This benefit grants immunity to the Directors and other Members in case the Company defaults. The assets of the Directors and Members cannot be used to repay the outstanding debt.
- Perpetual Succession
The Business operations of any Private Limited Company are not affected by the death, departure, or inability of any member to discharge his/her duty. In any case, the BusinessBusiness will run as usual as it is a Separate Legal Entity, and hence leaving of any member does not impact its activities.
- Improves Credibility
A Private Limited Company enjoys more Credibility in the market as compared to other forms of Businesses. As the Company details and information is available on the public domains, it becomes easy for Businesses to perform background checking and authenticate the information. As all the information can be verified, Businesses trust a Private Limited Company more.
- Easy Transferability of Shares
Transferring shares of any Company limited by shares is easy as compared to a Proprietorship firm. All you will have to do is fill and sign a share transfer & submit the share certificate.
- Raising Funds
As per the law, only a Public Limited Company or a Private Limited Company can raise funds from Venture Capitalists and Angel investors. So if you are planning to start a Business that will demand a considerable investment, it is advisable to go for a Private Limited Registration.
- Easy FDI
Foreign Direct Investment or FDI is rapidly becoming a trend in India. As the world realizes the Potential of Indian Businesses, global investors are looking for promising Businesses in India to invest in.
But as per the existing law, such investors can invest in a Private Limited Company only. Although there is a provision for investment in Propreitroship firms, the process is too complex. So, foreign investors prefer Private Limited Companies only for investments.
- No Minimum Capital required.
As per the current norms, a Private Limited Company can be created with the Authorized Capital of INR 10,000. So there is no need for hefty Paid-up Capital to start a Private Limited Company.
Disadvantages of a Private Limited Company
- No single Owner
This can be a significant disadvantage for many Businesses as it is mandatory to have at least two directors to establish a Private Limited Company. So in a Private Limited Company, the decision-making process might become slow.
This business structure is not suitable for the individuals looking to start the Business & have complete authority over it.
- Expensive Registration Process
The Private Limited Registration takes around 10-15 days, and its cost is higher than registering another form of Business. E.g., you can incorporate a Proprietorship firm without any initial expense on registering the Business.
There are many processes and steps involved in a Private Limited Registration, unlike a Proprietorship firm or Partnership firm. So if you are looking for an inexpensive Business structure that doesn’t burn a hole in your pocket, avoid Private Limited registration.
- Complex Accounting Process
A Private Limited Company has a complex accounting process. They need to maintain all the financial records every month. Moreover, they have to keep tabs on Tax Return filing, Business expenses, and Revenue generated in a detailed manner.
This is impossible without hiring a team of accountant or Outsourcing you accounting to an agency like Probal Consulting Group.
- No fundraising through Public Offerings
A Private Limited Company cannot raise funding through Initial Public Offering & its shares cannot be traded on SEBI-approved platforms. This limits the Growth scope of the Business that might need a massive investment to proliferate.
Like every other Business structure, a Private Limited Company, too, have some pros and cons. Remember, no Business structure is perfect or wrong. The selection of the Business structure should depend on the nature of your Business and your goals.
So it is always advisable to consult your Business Advisor before making such an important decision.
I hope this blog has cleared many doubts from your mind and has helped you understand the advantages and disadvantages of the Private Limited Company.
For any further clarification or information, feel free to visit our website.
Global Consulting Group is a leading Taxation, Accounting, and Compliance firm that helps individuals, MSMEs, and other businesses manage their accounting, taxation regulatory compliance affordably.