Starting a business is quite exciting and challenging, too. One of the most crucial decisions entrepreneurs often face is choosing a proper business structure. The chosen business structure lays down the compliance and other requirements for the business. Selecting a private limited company for startups offers numerous advantages, including limited liability protection, credibility and easier access to funding. In this article, we’ll discuss thoroughly the private limited company benefits for startups, helping readers understand why private limited company incorporation is the most preferred choice of startups in India.
What is a Private Limited Company?
A Private Limited Company, often abbreviated as ‘Pvt Ltd Co,’ is a widely popular business structure among entrepreneurs. In this structure, ownership is divided into shares held by private shareholders. This form gives businesses a separate legal entity and also limited liability protection to its owners. Due to such company registration benefits, this business framework has been witnessing rising popularity over the last few years.
Benefits of Incorporating a Private Limited Company for Startups
There are various advantages of opting for a private limited company incorporated in India. Some main advantages of registering your business as a private limited company are described below;
- Limited Liability
Limited liability is one of the most appealing advantages of a private limited company. Limited liability means shareholders are legally responsible only for a certain limited amount of debts or in the event of a company’s financial crisis. The liability of the members of a company is limited to the value of the shares they hold.
- Separate Legal Entity Status
A separate entity simply means a separate and distinct legal existence. Upon incorporation, a company gets a distinct identity and becomes a juristic person as per the Act. Due to attaining a distinct legal entity, businesses become capable of owning property on their name, incur debts, and can also sue any individual or entity.
- Perpetual Succession
A company offers a key advantage of ‘perpetual succession’ which means a persistent or uninterrupted existence until it’s legally winded-up or closed. Since a company is a separate legal entity, its existence remains unaffected even in case of departure, disability or even death of any member. It is of the most distinguished benefits of a private limited company in India.
- Capacity to sue and be sued
As a separate legal entity, a company can initiate legal proceedings or file suit against any individual or entity in a court of law and vice versa. In simple words, a company can sue and be sued in its name.
- Easy Transfer of Shares
Share transfer from a shareholder to other person in a company limited by shares is easier than in a proprietorship or partnership firm. Shares are easily transferable by filing and signing a share transfer form.
- Tax Benefits & Incentives
A private limited company can receive many financial rewards, including tax savings. These companies are tax efficient as they are subject to a 22% tax rate, a 10% surcharge, and a 4% cess for a significant tax rate of 25.17%. This business framework can also obtain incentives and subsidies offered by governments from time to time to foster the economy by providing required assistance to businesses.
- Easier Access to Loans & Funding
Since private limited company registration raises a business’s authenticity and credibility, it has better access to loans and funding options. It can issue additional shares, borrow money, or even issue bonds. Due to the transparency of business records, financial flow, operations, and management, investors are often seen as more inclined towards a company than other forms of business. Due to this well-structured framework, startups can raise capital through Angel Investors, Venture Capitalists, etc.
- Easy Global Business Expansion
Having a structured framework and a private limited structure allows startups to expand internationally, attract foreign investments, and also collaborate with partners from different corners of the world.
Key Considerations Before Private Limited Company Registration
While the benefits of private limited company registration for your startup are significant, certain factors should be considered before company registration. Those factors are listed below;
- Compliance Requirements
- Annual filings with MCA
- Audit requirements
- Maintaining proper books of accounts
- Higher Registration Costs
Compared to sole proprietorships, registering a Pvt Ltd company involves higher incorporation fees and legal formalities.
- Complex Decision-Making Process
Since multiple directors are involved, decision-making may require board approvals, which can slow down operations.
How to Register a Private Limited Company in India?
Registering your startup as a company seems daunting, but it’s simple if the below company formation process is followed;
- Obtaining Digital Signature Certificates (DSC)
- Applying for Director Identification Number (DIN)
- Reserving a Unique Company Name (RUN)
- Filing SPICe+ Form (INC-32)
- Obtaining PAN & TAN
- Issuing Certificate of Incorporation
Conclusion
Incorporating a Private Limited Company offers startups legal protection, funding opportunities, tax benefits, and enhanced credibility. While compliance requirements exist, the long-term advantages make it a preferred choice for scalable businesses.
If you’re launching a startup, consider consulting a legal or financial expert to ensure a smooth company registration process and maximize the company registration benefits for your startup.
About Company
Give your startup the legal identity of a private limited company with Setindiabiz and avail pvt ltd company benefits. Setindiabiz is a leading name that provides the best-in-class compliance and regulatory services to startups to help them register and ensure compliance. It offers end-to-end consultation and assistance in private limited company registration and other entity registration across PAN India. With decades of experience in this segment, it is capable of efficiently handling your startup registration as a private limited company to maximize private limited company benefits. Experience best-in-class, hassle-free and end-to-end company registration service with Setindiabiz.
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