7 reasons to Incorporate a Private Limited Company

A private limited company is a type of privately held small business entity that limits owner’s liability to their shares in major. In forming a new Limited Company, you are creating something new that is yours to grow and develop. Listed here are advantages of Private Company.

1. Team Building

Easy to attract quality workforce and achieve strategic motivation of employees by using flexible and wide range of management designations.

2. Attract Funding

It is Easy to raise capital from financial institutions. A company enjoys better avenues for borrowing of funds. Since a private limited company cannot issue shares to public, new shares can be offered to existing shareholders in the meanwhile when the company is being established. Banks and Financial Institutions offer large financial assistance to a private limited company. Further, the directors/shareholders do not have to give a personal guarantee/mortgage for funding from outsiders.

3. Limited Liability

This is one of the major advantages of a private company. Limited liability the company is liable for its own debts i.e the liability of the shareholders is limited only to their shares in the company. This benefits the owners from any financial crisis in the company as they would not risk of losing their personal assets. If a company becomes insolvent or any financial crisis, it has to settle the debts from its own assets.

4. Improve credibility

Formation of a private limited company indicates commitment to effective and responsible management. Incorporating a business can therefore open up new business opportunities that wouldn’t otherwise be available. Operating as a private limited company often gives third parties a sense of confidence in a business. Larger organisations in particular will prefer in dealing with private limited companies. A limited company has to follow strict compliances which avoids the risk of fraud, thus enabling the third parties to build trust in the company.

5. Separate Legal Entity

A company is a legal entity with distinct existence. It has its existence separate from its directors and members. So third parties contract with the ‘company’ and not the individual directors and shareholders. This means companies survive the death of the owners and change of the directors in the company over time. A company’s existence will only cease if it is formally wound up, liquidated or by any other means shut down.

6. Have an exit plan

Registering a business as a limited company can aid the possibility of selling it in the future, which can be difficult to achieve with other business structures. Entrepreneurs’ relief against capital gains tax may also be available on the sale of the business.

7. Foreign Investment

There are parent enterprises that provide foreign direct investment to obtain additional expertise, products and technology. Also, companies get tax incentives that will be very useful. Foreign direct investment creates new jobs, as investors build new companies in the target country, create new opportunities. This leads to an increase in income and more buying power to the people, which in turn leads to an economic boost.

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CA Ruchi Shah

CA Ruchi Shah

Author is a Practicing Chartered Accountant with a firm hold on Start-up consultation and International Taxation.