Company Registration

Benefits of Private limited company

calendar22 Jan, 2022
timeReading Time: 3 Minutes
Benefits of Private limited

A Private Limited Company is a closely held entity with very less interference from the outsiders towards the business. The main motive behind registering a private limited lies in the fact that the control of the company is vested in fewer hands and is not scattered. When two or more people join their hands and come together for a common set of goals and ambitions in the business, it is simply known as a Private Limited. Moreover, the legal status gained by a private limited entity puts the promoters in the position of positive limelight. The legal stature helps business to grow gaining more customer confidence and goodwill before the bankers. Easily financeable due to its registered status, the Private Limited entails within itself a lot more benefits. Let’s discuss those advantages in detail:

  • Separate Legal Entity status of a private limited

Imagine yourself running a business wherein the wholesome responsibility of profit and loss lies upon your head. In addition to that, if you are happy with the fact that you will be sole owner of all the gains reaped by the business, you must be prepared for bearing all the losses in the form of your personal bank accounts and properties. It is where the concept of a private limited company comes to the rescue. The company once registered, becomes a legal entity in the eyes of the law which has the identity of its own. The promoters can only be held liable to the extent of their shareholding or guarantee in the company. So, the personal risk over here is limited or pre-calculated.

  • Right of assets in its own name

Being a separate legal entity, the private company can own assets in its name and can also buy or sell those assets through its authorised signatories. This enables the private limited to retain its financial worth as no promoter/director or shareholder can make misuse of the assets held by the company for their own benefits, without getting approval in the Board Meeting.

  • Restrict the rights to transfer the shares externally

Being the closely held entity, the memorandum of a private limited, restricts its shareholders to transfer their shares outside the purview of Company’ internal shareholding. This means that if any of the shareholder wants to exits the business by selling off his shares, he/she must offer those shares to be purchased by the existing other shareholders. This restricts the entry of any unwanted person into the business. Therefore, the control is not hampered and the business is not impacted.

  • Perpetual Succession

Now this is another great advantage of a Private Limited which is worth mentioning. Normally, in the form of sole proprietorship or partnership kind of business entity, the life of the entity comes to an end if the sole proprietor or any or all of the partners are dead. This is not the case in a private limited. Its life continue to go on without any impact from the life and death of its promoters/directors or shareholders. The thumb-rule here is “One goes out, another comes in”.

  • Right to sue and be sued

Being a separate legal entity with an identity of its own, the private limited can file cases in its name and can also fight for the cases filed against it through its authorised signatories. This makes business with Private Limited an easy affair as such entity exists in the eyes of the law and therefore are quiet reachable in comparison with a proprietary concern wherein the owner can simply abscond or a partnership firm where it is difficult to hold any single partner liable.

  • Easier to raise funds

In case of a sole proprietorship, a single person is responsible for maintaining the finances for the business. It is also difficult to raise funds from Banks and other financial Institutions[1] as everything depends upon the credibility of only one person. However, it is not the case in Private Limited which enjoys a registered legal status. If a Private Limited is well compliant and has goodwill, then it is easier for them to borrow money from the Banks and FIs. These FIs rely upon the data present in the public domain in assessing the credibility of a Private Limited as well as the documents maid to available to them through the directors and shareholders.

  • Opportunity to grow and bright future ahead

Once a private limited is able to create a cadre for itself amongst its customers and other stakeholders and therefore wishes to expand its diversions, it is quiet easier for them to convert themselves into a public limited company and therefore have access to funds of public at large. They may even go for listing at stock exchanges thereby reaching out to a complete new dimension.

The above points elaborate the benefits of registering a Private Limited Company. In case you wish to organise your business and make your money more accountable, then this form of business entity would be quiet suitable wherein you will enjoy the advantage of limited control as well as limited risks also.

Read our Article:How to Incorporate a Company in India: Complete Guide

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