What are the advantages of being a private limited company?

Most common scenario to get started a business in India is either to register it 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.

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 span. This means, it will not cease to exist on the death of its owner. A company’s existence will cease only when it’s formally dissolved.

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.

Company will remain the same with 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

Owners of the private limited company have a limited liability to the extent of their share capital for the debts of the business.

This means, owners are limiting their personal liability to the extent of the money invested as share capital.

In case of proprietorship or partnership or LLP, liability of the owner is unlimited for the debts of the business. Proprietor or partners are personally liable for the debts of the business.

Credibility

Formation of a private limited company gives both suppliers and customers a sense of confidence to do business. In today’s competitive market, you distinguish your business from others.

In India, you can have one unique name in the line of your business as name resemble to an existing private limited company is not allowed to get registered.

In case of sole proprietorship or partnership business, there are no such restrictions.

If you have registered your private limited company with a new name, no one can register the same name or even a name that is too similar for the same type of business as a private or public limited company with MCA.

Information relating to the 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 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 certain percentage of shares of the 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 entire stake in the 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 to 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 to register it as a private limited company.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.