10 Reasons why you should start your Business with Private Limited Company in India

Asheesh Kunwar and his friend started a business of selling cloths with a oral partnership of 70 – 30 percent. Their first six months was a real struggling period however from the seventh month, their business started picking up. With the experience of Asheesh in marketing, their revenue shoots up in the next 6 months to around 40 lakh per month. 

Don’t take the above story lightly, because it can happen with anybody and in the form of any other story. Partnerships, proprietorships are not considered as the safe option for the business, therefore we recommend you to form a private limited company so that you can build a strong base for your business efforts.

Hence, we have summarized 10 reasons as to why you should register private Limited Company for your business in India:

Reason No.1 – Limited Liability: This is one of the most important benefits of a private limited company. Limited liability means the personal assets of the founder remains secured and their liability shall remain limited to the number of shared they held.

E.g. If Mr.A holds 10000 shares of Rs.10 each, then maximum liability of Mr.A is Rs.100,000/- therefore personal assets becomes secure.

Reason No.2 – Written terms and Conditions: Under private limited company all the terms and conditions are documented properly in the Memorandum of Association (MOA) and Articles of Association (AOA). Further, the ownership of the company is also divided by the number of shares. More shares means more ownership.

Further, if Asheesh would have incorporated the company then his friend could have cheated on him because everything is written.

Under company, ownership is divided into number of shares decided by the promoter itself. E.g. if you start a company with 1 lakh capital, that means if face value of share is Rs.10, then total shares will be 10,000/-. This 10000 denotes the 100% ownership. Now, if you want a fifty ownership then you must divide the shares equally, i.e. 5000 each and likewise in any other ratio as agreed between the founders.

Reason No.3 – Fund Raising: Private limited company is the only form of business that is eligible to raise funding from the venture capitalist, angel investors etc. Hence, if you are planning to raise funding for your startup, then private limited company is the only choice.

Reason No.4 – Easy Loan Funding: Investors only funds the startups however, traditional businesses do require a mechanism through which they can raise funding. Ideally they choose banks to get loans for their business. If you have established a private company, then it is easier to get the loan funding from the bank.

Reason No.5 – Trust Factor worldwide: Businesses now a days are not limited to the local boundaries of our country rather each economy is inter dependent upon each other. 

In this world of globalization, only private limited companies are regarded as sole trusted form in India. This is because partnership and proprietorship are unregistered form of business and have certainly no recognition in the world and hence the foreign buyer/collaborator will remain suspicious about the security of interest. 

But a private limited company is trusted and recognized world over.

Reason No.6 – Easy in hiring: Businesses are not built by the one person but by the team. It is only the team work which takes business from scratch to crore. Hence, having good people in the organization is very important. 

Under a private limited company, hiring is easy as psychologically it gives them a sense of satisfaction that they are working in a corporate culture.

Reason No.7 – No More compliance fear: Most of the entrepreneurs don’t choose the private company because of a fear of high compliances which is actually not true. If your company is incorporated, you can just outsource your legal compliance to a CA at a average cost of Rs.10,000 to 20,000 per year which is very reasonable in the today’s world. 

Reason No.8 – Perks of SSI: When you run a medium size business, then you can easily claim the benefits of Small Scale Industries just by seeking a license of MSME registration.

The main benefit of this law is that if anybody delays the payment to MSME, the he is liable to pay the sum with interest of 18% per annum.

Reason No.9 – Deduction under Income tax for salary to directors: Once you are a director in the private company, then your salary expense shall be allowed as a deduction under income tax act. However, if you run a proprietorship, then you are not allowed to take salary from business.

Reason No.10 – Bad Cibil of directors/owners has no impact on Private Company: Suppose you defaulted in payment of interest to the bank and your account has been treated a NPA by the bank, then also your company’s track record (cibil) shall have no impact because a Private limited company is very legally separate legal entity in the eyes of law.

Reason No.11 – Increase in valuation: Do you know as per the report, it has been found those businesses which are running under private limited company attracts more valuation than any other form of business. Further, private limited company is the only form of business which can take foreign funding under the automatic route.

We have tried to write every benefit and reason as to why entrepreneur should choose a private limited company as their form of business. Hence, if you are planning to start a business, then go for private limited company registration in India.

CA Paras Mehra is a thinker, writer, reader and speaker. He is also professionally associated with hubco.in, a brand for private company registration and other related services.  Connect to him:

Twitter Handle: @IamParasMehra

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Email: paras.mehra18@gmail.com