Benefits of Private Limited Company

Private Limited Companies are one of the most popular business structures in India. In this kind of a set up, it is the shareholders who actually own the business. Further, the shareholders appoint directors to run the business, generally shareholders and directors are all the same person. 

Shareholders are the actually owners of the company while directors are the employee of the company. These kinds of companies do have shares but they are not traded on public exchanges. The shares are only for the internal partners.

The Business Edge

With flexibility and fund raising capability, more and more entrepreneurs are opting for the private limited business structure. In doing so, the entrepreneurs are reaping immense business benefits in the likes of:

• Minimum liability: Owing to the nature and the structure of business, a private limited company is treated as an independent legal entity thereby, eliminating any sort of liability on the part of the shareholders. The company is solely responsible for all the debts. In the face of any unforeseen business situation, the shareholders or members do not go bankrupt.

• Fund raising: A private limited company offers the important benefit of fund raising through any private investors or angel funds or any other source just by giving the equity shares of the company. This kind of practice is actually followed by most of the startups specially tech startups. E.g. OLA, Flipkart, Snapdeal raised funds because of this benefit only.

• Independent legal presence- A private limited company is considered to be an independent legal entity with its own assets, debts and legal capacity. Hence even in case of promoters having defaulting credit ratings, it will have no impact on the credit rating of the company.

• ESOPs: Private limited company offers you to issue employee Stock options plan to retain the key resource of the company. ESOPs are like creating a pool of equity shares and then distribute the same to your employees against the commitment of atleast 2 to 3 years. This also one of the best ways to lieu the key employee for a longer run.

• Uninterrupted business continuity- The Company as a legal business entity holds the sole right to function till it is dissolved and remains unaffected by the exit or death of any of its shareholders.

• Better Investment and borrowing capacity- Private limited companies can easily be formed by NRI’s and foreign passport holders thereby, opening up the way for FDI. Also, investment in other form of business like LLP is restricted for NRI and foreign residents. Furthermore, private limited companies hold the right to issue debentures and secure funds from the public for business expansion. It has been seen that even banks and financial institutions prefer to lend monetary support to private limited businesses owing to their market credibility.

In addition to the above mentioned benefits, it is interesting to note that a private limited business structure allows a shareholder to function as a salaried employee, irrespective of the designation of employment. In case of a resource crunch, the same employee can offer financial assistance as a creditor. 

Hence, if you are looking for something big and you actually want a lot of flexibility for your business then you must choose private limited company as your form of business.