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What are the Advantages of Private Limited Company in India?
Introduction
India has seen a rapid increase in new businesses across industries in recent years. A private limited company (Pvt Ltd) is a popular business structure for profit making entities. This article shall dive in to help you know the various benefits that a Private Limited Company serves.
What is a Private Limited Company?
A Private Limited Company (Pvt Ltd) is a legally recognized business structure in India. It requires at least two directors and shareholders, with a limit of 200 members. It is a preferred choice for startups and growing businesses due to its authority and structured operations.
Basic Requirements for a Private Limited Company
These are a few minimal criteria to be followed to fall into a Private Limited Company:
- Registered Office: A physical address for official communication (not a PO Box). Must be in the business’s jurisdiction.
- Business Name: Must be unique, not offensive, and follow Companies House rules.
- Director: At least one director (16+ years old, not bankrupt or disqualified).
- Service Address: A legal contact address. This is public.
- Member (Owner): At least one shareholder or guarantor who owns the business.
Advantages of a Private Limited Company
The renowned structure Private Limited Company serves major benefits, including:
- Limited Liability: Shareholders invest a specific amount, limiting their responsibility and protecting their personal assets from business risks.
- Separate Legal Entity: The company operates independently of its owners, owning assets, entering contracts, and handling legal matters on its own.
- Easier Access to Capital: Private Limited Companies raise funds by issuing shares or securing loans, simplifying business growth.
- Uninterrupted Existence: The company continues operating even if shareholders leave or pass away, ensuring business continuity.
- Protected Business Name: Registration prevents others from using the business name.
- Flexibility in Income: Directors decide how to receive payments (salary or dividends), optimizing their tax liabilities.
- Easier Transfer of Shares: Shareholders can transfer shares among themselves, allowing flexible ownership changes.
- Dual Relationship: Shareholders can be both shareholders and employees.
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Special Benefits of a Private Limited Company
Some more exclusive advantages of a Private Limited Company
- A private company can help employees buy its or its holding company’s shares.
- No need to prepare an AGM report during annual filing.
- No need for an annual board performance evaluation report.
- Only two directors are required.
- No need to appoint independent directors.
- Retire-by-rotation rules do not apply.
- Directorship limits in public companies do not include private companies (unless they are a subsidiary/holding of a public company).
- Employment contract rules for managing or whole-time directors do not apply.
- No restrictions on total managerial remuneration for directors and managers.
Governing Laws under Private Limited Company
The following Acts and Laws residing under a Private Limited Company
- Companies Act, 2013: Rules for company formation and management.
- Income Tax Act, 1961: Governs company taxation.
- GST Act, 2017: Applies if selling goods or services.
- Labour Laws: Covers employee wages and benefits.
- Contract Act, 1872: Governs business agreements.
- FEMA, 1999: Regulates foreign investments.
- IP Laws: Protects trademarks and patents.
- Shops & Establishments Act: Covers work hours and wages
Conclusion
Hence, if you have big business goals, want to expand, or protect your personal money while running a company, registering a Private Limited Company is a great choice.
Suggested Read :
Appoint a Director in a Pvt Ltd Company
Employee Structure of a Pvt Ltd Company
FAQ
1. How does limited liability protect shareholders?
Owners are not personally responsible for company debts. Their personal assets stay safe.
2. Why do banks prefer private limited companies?
They have a stable structure, legal compliance, and better financial records, making loans safer.
3. What makes private limited companies attractive to investors?
They offer growth potential, limited risk, and easy share transfer, making investments secure.
4. What is the minimum and maximum number of members in a Private Limited Company?
A Private Limited Company must have at least 2 members (owners) and can have a maximum of 200 members.
5. What are the tax benefits of a private limited company?
Lower corporate tax rates, deductions on expenses, and better financial planning options.
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