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Why Private Limited Company is right entity for your Business?

Shrijay Sheth , Last updated: 01 December 2017  

Running and yielding of profit out of Business activity is only possible after its successful establishment. A decision to select the right type of organisation for your business is a crucial step demanding a thorough deliberation of pros and cons of the obtainable organisation structures. The Private Limited Company Registration is now-a-days most preferable by number of start-ups as well as entrepreneurs, whether on small scale or medium scale.

Private Limited Company is an entity which assures wider scope of expansion even after its formation and during its existence. Now and then all companies operating on large scale have started their business from small scale only and if you are looking forward to take your operations on large scale, incorporation and online formation of company in India can be a preferable choice for your Business considering the advantages assured by this entity.

Advantages of Electing a Private Company as Business Structure:

Number of Person:

First aspect any originator or co-founder of Business looks into a business is number of person(s) required for the registration and establishment of an entity. In order to establish of Private Limited Company, two members (shareholders) as well as two directors are required. Here, the beneficial part is the person subscribing the shares of the company i.e. shareholders and the directors can be same person. This means that same person can hold both positions of shareholder and Director at same time. Hence, the business can be established as Private Entity with minimal requirements for number of people.

Requirement of Capital:

The start-ups always look for the minimal capital requirement as funds are constraint for new arrivals. The Private Limited Company Registration does not require any minimum amount of paid-up capital to be introduced at the time of incorporation. However, the Authorized Capital of the company is to be kept at minimum Rupees One Lakh only.

Hire Separate Management:

The separation of both management and ownership can be possible in case of Private Limited Company. Where the owners are unable to offer full time for the Business after online registration of Company, the owners can hire directors for the company, who shall be responsible for the day-to-day operations and management of the company.

Separate Legal Entity:

At the end of procedure for incorporation of the company, a separate legal entity is born in the eyes of law. The characteristic of separate legal entity is the paramount advantage granted by this organisation. By virtue of this characteristic, the legal existence of the company is different from its owner as well as management. Due to separate legal existence, the company is empowered to own and hold assets in its own name and no right of owners can be exercised over the assets of the company. In addition, the owners are not liable for any actions taken by the company unless caused with fraudulent intention with involvement of owners.

Limited Liability:

Having separate legal entity, the company is only responsible to pay off the debts and liabilities of the company. The owners are unaffected with the liabilities of the company. The liability of the shareholder will be limited up to the unpaid amount of shares owned or amount guaranteed (in case of a guarantee company). The limited liability is the greatest relief the owners of the company would feel.

Continuous Existence:

A Private Limited Company has its own identity separate from its members as explained above. By virtue of this characteristic, Private Limited Company as registered under Indian Companies Act, 2013, enjoys Perpetual Succession. Change of members of the company does not affect the existence of a company. The existence of company can be led to an end only by way of Liquidation as prescribed under Law.

Higher Credibility & Ease for Fund Raising:

Private Limited Company is more credible in market compared to other entities due to applicability of stringent provisions to be followed for the Private Company Incorporation with certification and guidance of the Professionals. The said provisions lead to transparency in transactions and aids reliability of the financial institutions. Also, the involvement of members up to 200 makes it easy to raise fund from internal sources of organisation by raising capital.

Capacity to sue and be sued:

Alike ability to hold assets in the name of company, the company is also able to initiate legal proceedings against any third person in its name. Also, a third party can file suit against the company.


The aspects discussed in this article are most common characteristics offered by the company as an organisation structure. Further, benefits offered by the said structure can be derived based on the industry in which the proposed Company will operate. With consideration to the said benefits offered by the Private Limited Company, a business on small and medium scale can be commenced under said corporate structure. Followed by growth of the company, it can later be converted into Public Company and listing on stock market can also be proceeded with.

About Author:

The Author of the Article is co-founder at India's leading online Legal Service Provider, LegalWiz.in. He can also be reached at support@legalwiz.in for Incorporation of Private Limited Company other personalised solutions.

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Published by

Shrijay Sheth
Category Corporate Law   Report

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