Do you want to be an entrepreneur? Setting up a business seems to be exciting, but it can be confusing too. There is a lot of things to plan and consider before starting your own venture. Before you start your own firm, you must decide what kind of entity it will be. If you want to own a business, you must decide what kind of entity it will be. If you want to own the business entirely yourself, you must register your business as a sole proprietorship. Alternatively, you can also register it in the form of partnership. But, if you want to separate your personal liability from the company’s one, then you must opt private limited company registration.
The kind of business structure you will select will influence how much will you pay as taxes, the amount of paperwork needed and the amount of personal liability you will need to face.
Here, we will help you understand the Private Limited Company registration procedure and its benefits, keeping in mind that India has the 3rd highest number of start-ups after USA and China. Entitling your business with a legal identity is very important. Also, you may consider consulting a corporate lawyer for the same thing. In addition, setting your business as a Private Limited Company is by far the easiest way to go about this.
What is a Private Limited Company?
A Private Limited Company is a privately held company for small businesses. This kind of business entity restricts the owner’s liability to shareholdings, the number of shareholders to 50, and limits the shareholders from trading the shares publicly.
Two kinds of Private Limited Company
- Private Limited Company which is limited by shares- In this kind of company the liability of members is restricted to the amount unpaid on the shares held by them.
- Private Limited Company by guarantee is the one where a member’s liability is restricted to the amount that they have agreed for undertaking while winding up.
Advantages of Private Limited Company
Limited Risk- The shareholders of a Private Limited Company have a restricted liability meaning that as shareholder one can pay for the company’s liability to the extent of contribution that you made.
Legal entity- A Private Limited Company has a distinct legal entity from you signifying that the Organization is responsible for managing its liabilities and assets, debtors and creditors. However, you are not responsible for the same. Thus, creditors cannot continue against you for recovering money.
Business Entity- Private Limited Company enjoys permanent succession as the company is its own legal entity. Employees and shareholders play the role of ad agents of the company.
Raising money- Though private company limited company registration comes with various compliance requirements, it is preferred by the entrepreneurs as it helps in raising capital through equity and restricts the liability.
Tax benefits- In addition to the limited liability, Private Limited Company’s even enjoy tax benefits. They pay corporation tax on the taxable profits and tend to be spared from high personal income tax rates. Forming an organization instead of continuing as a sole proprietor or trader opens the way for more tax-deductible expenses and allowances redeemable against the earnings.