It is an exciting journey to start a new business. However, this enthralling journey also requires a lot of careful consideration, planning and decision-making. The first and one of the most important decisions is the selection of an appropriate business structure. For many entrepreneurs, new pvt ltd company registration is a very attractive option for their business model. You must be wondering, why so? Don’t worry, through this blog, we explore the numerous benefits of registering a new pvt. ltd. company. Let’s dive in!
Limited Liability Protection
The most basic advantage that a private limited company in India offers is limited liability protection to its members. This means, that unlike the informal business structures such as sole proprietorship and partnership firms, the shareholders in a Pvt. Ltd. companies have their liabilities limited to their contribution or guarantee. Whereas, in informal business structures, the liability of the owners can extend to their assets as well. So, their assets are at risk in case of any business-related debts or legal issues. Hence, private limited companies offer this amazing advantage to business owners to protect their assets. This reduction in the risk of loss of personal assets helps in providing peace of mind and financial security to the owners of a Pvt. Ltd. Company.
Separate Legal Entity
Once the registration process is over, a Pvt. Ltd. is considered as a separate legal entity under the law. This creates a veil of separation between the company and its owners. This protects the owners from the actions of the company and vice versa. Having a separate legal existence means that the company can enter into legal contracts, it can own, buy and sell properties, and can also sue and be sued in its name. This is a legal distinction which enhances the company’s credibility. The goodwill of the business is not only limited to the goodwill of its owners. This helps the company in raising funds, acquiring assets, and entering into business relationships and partnerships.
Easier Access to Funding
A privately held company can raise capital by issuing securities, asking for loans, grants, and more. This business structure has several advantages which make getting funds extremely easy. A Pvt. Ltd. Companies can issue shares to investors, and make it easy to attract equity funding. Equity investments are an attractive option for investors as well since they limit the risks they face as well. Besides, Pvt companies often find more opportunities to secure loans and credit from banks and other financial institutions. This is a result of the limited liability and the assurance that the company is liable to its shareholders as well.
Having a perpetual existence is a significant add-on to the benefits of registering a private company in India. As a result of these benefits, a company will continue to exist even when its shareholders/members/owners change or pass away. This means the existence of the company is not dependent on the existence of its owners. This continuity increases the brand value and further ensures that the business can scale, grow and thrive without facing any complications by the change in the ownership of the company.
Professional Brand Image
For all private limited companies incorporated in India, it is mandatory to have a suffix to the name as “Pvt. Ltd.”. This helps in recognising the status of the company. Further, it shows that the business is a registered business with many benefits. It gives your company and the brand a whole new professional look in the eyes of potential investors, customers, suppliers partners, etc. This will boost your brand’s goodwill, credibility and further instil trust, and make it easier to attract clients and partners.
In furtherance of the ‘Ease of Doing Business’ in India scheme, the government of India allows Pvt. Ltd. Companies enjoy various tax benefits. This includes lower tax rates, and also the ability of companies to claim tax deductions for valid and legal business expenses. Besides, the corporate tax structure is comparatively more flexible in tax planning and management. This helps the company in optimising its tax liabilities. Further, if your company is an eligible startup and gets startup India recognition, you can also apply for additional tax benefits such as 80 IAC exemption for startups, and angel tax exemption.
Easy Transfer of Ownership
Because private companies have a perpetual succession. It is also an added advantage which makes the transfer of ownership an easy process in private companies. The only catch is that this transfer must be as per the terms of the Memorandum of Association and Articles of Association of the company. If it is not as per these terms, then, such transfer of the ownership becomes ultra vires. Hence, the shareholders can sell or transfer their shares to other individuals or entities without affecting the day-to-day business operations. This is a very important feature of a company, especially when the owners are planning for the business succession or are looking for new investment opportunities.
Enhanced Borrowing Capacity
Venture Capital firms, financial institutions, lenders, etc. are usually inclined to lend money to Pvt. Ltd. Companies. This is a result of the structured and regulated nature of Pvt Ltd companies. Hence, Pvt Ltd companies have an increased borrowing capacity as compared to other types of business structures. This in fact will help your business access the funds necessary to expand and achieve its growth objectives. Hence, if you are starting a business to scale it to new heights, a private company registration is the best option to get the funds you’ll need!
Attracting Top Talent
For any business to grow it is important to acquire talent with the appropriate skill set. Employees are usually looking to work in formal business structures, which assures them. Further, in India, Pvt Ltd companies can issue shares to their employees to increase motivation and increase retention rate by way of ESOPs. ESOP stands for the employee stock option plan. Hence, professionals prefer the job security that is associated with working for a registered company. Besides, this also makes it easier for the company owners to build a skilled and motivated team of professionals.
Compliance and Governance
When you register a private company in India, you also need to adhere to certain mandatory legal and regulatory compliance. This might seem like a burden on the surface, but it can benefit your business in many ways such as creating governance practices, transparency, and accountability. Besides, compliance also helps in avoiding the legal issues that can affect certain unregistered business structures.
To conclude, it is pretty evident that the benefits of registering a new pvt ltd company are numerous and can have a significant effect on the success and growth of your business. However, you need to ensure that you hire certified professionals who can help you with the submission of applications and documents required for pvt ltd company registration.