Before going into the details let us understand what exactly is a Private Limited Company?
Well, it is the most preferred business model by young entrepreneurs and Start-ups. Such companies can be started with just two members and need not require much of the formalities. You can initiate your business operations once you get a Certificate of Incorporation.
There are many benefits of registering your business as private limited however; here, we’ll focus on the most important ones you MUST know.
The initial business period for any Start-up or Company can be a great deal of stress and unbalanced financial planning. While all the legal formalities and business setup can disturb your finances, registering your business as a Private Limited can be a sign of relief.
Being a separate legal entity there are various tax benefits levied by the Government for the growth of Private Limited Company in India. Entrepreneurs can make the best use of it by knowing where they can get tax exemptions and how to reduce the outflow of cash.
You need to pay 25% of the net profits as Tax if, the gross receipts (profits) in the year does not exceed the amount of Rs. 250 Crore. Even under Start-up India, there are several tax benefits in case the annual turnover of your business does not exceed Rs. 25 Crores. Special Exemptions are also provided in case of long term capital gains.
The treatment of Liability in a businesscan be bit troublesome for most of the entrepreneurs. Opting for a private limited company gives you the advantage of limited liability for all its members. This ensures that all the members and shareholders stay protected and do not have to worryabout paying the debts in case the business encounters huge losses.
Limited Liability protects the personal assets and finances of the members and they do not require to contribute anything beyond their shareholding value. In simple words, the directors in a private limited company is limited to the amount of shares held by them.
In case of winding up of a company, the liability of the members will be limited to the amount unpaid on their shares. Thus, the existence of a company is different from its members and must not be intermixed.
Shares are an important part of every business which greatly contribute to the earnings and profits. The company require new investors and shareholders from time to time in order to maintain the profits. There are different types of shares involved in a private limited company like equity shares, preference shares, equity shares with differential voting rights, sweat equity shares, employee stock options plan (ESOP).
These shares are transferrable and the shareholder can at any time transfer the shares to any other person. However; a private limited company cannot trade the company shares publically i.e. it cannot invite the public to subscribe to any securities involved in the company.
The transferability of shares should be clearly mentioned in the Articles of Association since there is a proper procedure to transfer shares on the name of some other person. If this is not the case, then the terms of articles of association can be altered/changed by passing a special resolution in the general meeting.
Taking your business on an international level or expanding its branches is like a cherry on the top. Growing your Start-up can take time but if you are registered as a private limited company, you might not need to put much efforts. Foreigners or Non-Resident Indians prefer private limited companies for their investments.
More on: Foreign/NRI Director in a Private Limited Company
You can also add them as directors in the company thus increasing the goodwill of your business. They find this form of business more suitable due to limited liability and various tax benefits. They can also be the shareholders in the company which also brings Foreign Direct Investments in the country and into the business.
Registering your Start-up opens up various opportunities for your businesssince it helps build trust among your customers. Also, you are bound to use a suffix of Pvt. Ltd. which makes it more reliable for your investors, suppliers or potential clients to invest in the company.
As the owner of the company, it gives you the right to sue any person/company in case of any unforeseen event. Since the company comes into existence once you complete the registration process it will continue to exist till it is winded up according to the provisions in the Company Law.