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Pankaj Tyagi
| Updated: 29 May, 2021 | Category: Private Limited Company

Know why a private limited company is the best business structure for start-ups in India

private limited company is the best business structure for start-ups in India

Being transformed into a successful business entity is challenging even for start-ups with a bright idea. Start-ups, in general, need to cater for plenty of parameters before initiating business activities. Choosing the right structure is indeed one of the most important decisions for start-ups in their business journey. In this write-up, you will come to know why a private limited company is the best business structure for start-ups in India.

An Overview on a Private Limited Company 

A Private Limited Company is established lawfully with limited liability or legal protection for its shareholder, but that imposes limitations on its ownership. 

It is a form is a company that is privately held for small businesses. The liability of the members of such an entity is limited to the share’s quantity held by them. The share of these companies is accessible to the public domain. 

A private limited company is arguably one of the popular forms of business registration in India. Only two people are required to trigger its registration process. Limited liability on shareholders, ability to procure equity funds, the autonomous legal entity makes it the best business structure for start-ups and other business structures. 

  • Minimum Requirement to set up Private Limited Company in India
  • A minimum number of two Directors having a permissible age limit.  
  • One of the Directors has to be an Indian Citizen & Indian Resident.
  • The other Director(s) can be from a non-Indian territory. 
  • The presence of two shareholders is a must for setting up such a company. 
  • The shareholders can be an artificial legal entity or a natural person. 

Read our article:All you need to Know about Private Limited Company

Reasons why the private limited company is the best business structure for start-ups

Following are the reasons the justified the fact that the private limited company is the nest business structure for start-ups in India

No Minimum Capital

No minimum capital is needed to set up a Private Limited Company. Such an entity is registerable with a sum of Rs 10,000 as total authorized share capital.

Separate Legal Entity

A Private Limited Company is an independent legal identity from the law’s viewpoint. It means that the assets and liabilities of such a business are not similar to the assets & liabilities of the Directors. Both are distinctive in this regard. Such an entity separates ownership & management, and therefore, managers are accountable for the company’s success and are also answerable. 

Limited Liability

Limited liability makes these entities damage-proof in terms of members’ protection. Meaning – in case of financial crisis incurred due to whatsoever reasons, the members’ assets will remain secure while paying up the debts. Fencing of liability helps members work without wondering about future damages. In case of debt, the member would be only liable to pay their part, i.e. their shareholding. This is probably why privately held entities are considered the best business structure for start-ups in India. 

Fund Raising

Minimal exposure to risk makes these entities less prone to limited funding. That means their chances of procuring funds from Venture Capitalists or Angel investors are brighter than other business forms. 

Free & Easy transfer of shares

The company’s shares (limited by shares) are transferable to any other person by the shareholder. The transfer is less tedious than the transfer of an interest in a business run as a partnership or proprietorship. Filling & signing a share transfer form & handing over the share’s buyer along with the share certificate can seamlessly transfer shares. 

Uninterrupted existence

A Private Limited Company mitigates the threat of being dissolved unexpectedly due to the demise or departure of any member. Such entities excel on the concept of Perpetual Succession’ which keep them alive under the circumstances above. That means their existence remains unaffected by cases other than legal dissolution or winding up. 

FDI Allowed

A low-risk profile allows the private limited company to attract 100% Foreign Direct Investment. The overseas investors can make direct funding to these entities to reap more profit. The seamless flow of overseas funding makes the private limited company the best business structure for start-ups in India.

Process of the private company registration process 

After the inculcation of the SPICe+ webform, the incorporation of the private limited company has become easier than ever. All applicants need to visit the official website of the Ministry of Corporate Affairs[1] and fill this form accordingly to register their firm. 

SPICe+ is an online form that clubbed everything required for the incorporation process. This form is divided into two parts, i.e. Part A and Part B. 

PART A helps the applicant to apply for a name reservation. Once the applicant filed the required details and the list of the proposed name, the portal conducts a real-time inspection with its database for name availability. 

The second part of the SPICe+ form, i.e. Part A, allows user to drop a request for the following services given below to complete the incorporation process. 

Process of the private company registration process

Conclusion 

Starting a business journey requires start-ups to make a lot of informed decisions. A lot of detailing needs to be outlined before commencing the proposed operations. These entities must pay extra attention when it comes to selecting the proper business structure. It is clear from the above that a private limited company has beefed with plenty of benefits, making it the best business structure for start-ups. 

Read our article:Benefits of Startup India Registration in India

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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