Difference between Enterprises and Pvt Ltd Companies
Introduction
Various terms are used to describe a business or an entity engaged in economic activities, such as a company, firm, establishment, or venture. These concepts are quite similar, often leading to their interchangeable use. This article helps you differentiate between the Enterprise and Private Limited Company, respectively.
What is an Enterprise?
An enterprise is a business or organization engaged in economic activities, such as selling goods or services. It can be small or large and may be run by individuals, groups, or corporations. Enterprises aim to earn profits, grow, and contribute to the economy.
What is the new & Revised definition of different categories of Enterprises?
- Micro Enterprise: Businesses in manufacturing and services with an investment of up to Rs 1 crore and a turnover of up to Rs 5 crore fall under this category.
- Small Enterprise: The revised criteria for small enterprises include an investment of up to Rs 10 crore and a turnover of up to Rs 50 crore.
- Medium Enterprise: Enterprises with an investment of up to Rs 20 crore and a turnover of up to Rs 100 crore are classified as medium enterprises.
How to Register an Enterprise in India?
Follow these steps to register your enterprise at ease:
- Choose Business Type: Sole Proprietorship, Partnership, Pvt Ltd, or LLP.
- Gather Documents: PAN, Aadhaar, address proof, and business details.
- MSME/Udyam Registration (Optional): Apply online at udyamregistration.gov.in.
- GST Registration (If Needed): Register at gst.gov.in.
- Open Business Bank Account: Submit PAN, Aadhaar, and registration proof.
- Obtain Licenses (If Required): Trade License, FSSAI, Shops & Establishment Act, etc.
Benefits of an Enterprise
These are the below mentioned benefits an Enterprise has:
- Job Creation: Enterprises generate employment opportunities and support livelihoods.
- Economic Growth: They contribute to the economy by increasing income and revenue.
- Innovation & Development: Businesses drive new ideas, products, and services.
- Financial Independence: Enterprises help individuals and companies earn profits and grow.
- Better Living Standards: Successful businesses improve quality of life and community development.
We help to register Pvt Ltd company and manage Pvt Ltd annual filing, ensuring seamless incorporation and compliance.
What is a Private Limited Company?
A privately held business entity, a Private Limited Company (Pvt. Ltd.), has ownership limited to specific shareholders. Its shares cannot be publicly traded, unlike those of a Public Limited Company.
- It has been designed for small and medium sized businesses.
- The value of shares owned limits the liability of shareholders.
- Shares cannot be offered to the general public or listed on stock exchanges.
How to Register a Private Limited Company?
- Get DSC & DIN: Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors.
- Reserve Company Name: Apply via RUN service on the MCA portal.
- Prepare MOA & AOA: Draft the Memorandum of Association (MOA) and Articles of Association (AOA).
- File SPICe+ Form: Submit incorporation documents on the MCA portal.
- Get Certificate of Incorporation: MCA issues COI, PAN & TAN after approval.
- Open a Bank Account: Use COI and PAN to open a current account.
- Register for GST & Licenses (if needed): Required if turnover crosses the threshold.
Advantages of a Private Limited Company
The Private Limited Company offers several plus points:
- Limited Liability: Shareholders are only responsible for the amount they invest, protecting personal assets.
- Separate Legal Entity: The company is independent of its owners, ensuring stability and continuity.
- Easy Fundraising: Investors and banks prefer Pvt Ltd companies for funding.
- Ownership Control: Shares are privately held, preventing unwanted interference.
- Better Credibility: Pvt Ltd companies gain more trust from clients and investors.
Differences between an Enterprise and Private Limited Company
| Aspect | Enterprise | Private Limited Company |
| Ownership | Can be owned by individuals, partnerships, or corporations. | Owned by shareholders with limited liability. |
| Legal Status | May or may not be a registered entity. | A legally registered entity under the Companies Act. |
| Liability | Depends on the type of enterprise; can be unlimited. | Limited liability for shareholders. |
| Share Trading | Not applicable or varies by structure. | Shares cannot be publicly traded. |
| Regulation & Compliance | Fewer legal formalities and compliance requirements. | Must follow strict regulations under the Companies Act, including audits and filings. |
| Taxation | Taxation depends on the type of enterprise (sole proprietorship, partnership, etc.). | Taxed as per corporate tax laws, often lower than individual tax rates. |
| Fundraising | Limited funding options, mainly from personal savings or small loans. | Easy access to bank loans, venture capital, and investor funding. |
| Perpetual Existence | May dissolve if the owner exits or passes away. | Continues to exist regardless of changes in ownership. |
| Credibility & Trust | May not be as credible for investors and customers. | Higher trust and credibility due to legal registration and compliance. |
Conclusion
An Enterprise offers flexibility and fewer regulations, a Private Limited Company provides credibility, limited liability, and better funding options. Although both of these business structures have own benefits and purposes to serve, it is the sole decision of the owner of a company to choose either of the business types.
Suggested Read :
Difference between Public Limited and Pvt Ltd Company
Difference between LLP and sole proprietorship
CMA Report and Business Valuation : Differences
FAQ
1. What is the basic difference between an Enterprise and a Pvt Ltd Company?
An Enterprise is a general term for any kind of business, whether it’s a small shop, a large company, or even a startup. It could be a sole proprietorship, a partnership, or a corporation. On the other hand, a Pvt Ltd Company is a specific type of business that is registered under the Companies Act and has limited liability, meaning the owners are not personally responsible for the company’s debts.
2. Which one is better for startups?
For startups looking to grow, gain investors, and protect personal assets, a Pvt Ltd Company is often a better choice. It offers a formal structure and the ability to raise capital more easily. An Enterprise, like a sole proprietorship, is quicker and easier to set up but doesn’t offer the same legal protections or investment opportunities.
3. Do they pay different taxes?
Yes, they do. An Enterprise, such as a sole proprietorship, pays taxes based on individual income tax rates, which can be higher depending on the income. A Pvt Ltd Company, however, pays a corporate tax rate that is generally lower and more structured, providing certain tax advantages.
4. Can a small business change from an Enterprise to a Pvt Ltd Company?
Yes, a small business can change from an Enterprise to a Pvt Ltd Company by going through a formal registration process under the Companies Act. This involves creating a new company, getting a new PAN number, and following the necessary legal steps to comply with corporate laws.
5. Which one is better for getting loans and investments?
A Pvt Ltd Company is usually better for securing loans or attracting investors. Banks and investors prefer the formal structure and limited liability of a Pvt Ltd Company. On the other hand, an Enterprise, especially a sole proprietorship, relies on personal credit and may find it harder to get financial backing.
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