A Company registered under the Companies Act of 2013 in India can be deemed as a valid corporate entity. A private company is controlled and owned solely by a small assemblage of individuals or other entities capable of providing capital. Private corporations are exempt from public and government scrutiny as they are not listed on any exchange for public sale. Moreover, shares of private companies cannot be traded in any secondary market as well as there is a restriction on the right to transfer shares. Section 2 (68) of the Companies Act gives definition to the scope of such a business corporation. According to the section, a private limited company is: 

A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred;

(iii) prohibits any invitation to the public to subscribe for any securities of the company.” 

While it may be true that the registration of a private limited company can be an expensive and time-consuming process, there are a plethora of benefits which are attached to private company incorporation which should not be ignored. Keep reading to know more.

Limited Liability

Private limited companies on the verge of bankruptcy unlike partnership firms and proprietorship offer solid protection to the company’s shareholders and protect their personal assets. On the off chance, the company fails to attain profitability and collapses, just the initial capital amount poured into starting the venture is at risk of being lost. The shareholders of a private limited company enjoy limited liability and are safe from experiencing severe financial ruin. The creditors of such entities cannot compel the directors or the shareholders of the company to sell off their personal assets to repay the company’s debts.

In conclusion, company registration online provides complete protection to its shareholders during a financial crisis. This business format allows the owners to avoid risks connected to debts and enable them to endure minimal compliance formalities.

 Perpetual Succession 

Private limited companies are found on the system of “Perpetual succession”. This essentially means that the company\'s existence remains unscathed and protected even if a shareholder dies. Until and unless the shareholders decide to wind up the company, the longevity of the entity remains intact. In other words, Members may come and go as they please, but the company lives on forever. Seamless continuity in existence is what makes a private limited company the most sustainable business model.  

Superior Borrowing Ability

A privately held company has the capacity to obtain way more funds than limited liability partnership firms or even proprietorships as it has access to more numerous channels of funding. Private Limited Companies can easily receive bank loans and also have the option of issuing debentures as they are more credible in the eyes of the public. Moreover, convertible debentures  and bonds can also be issued to raise additional capital 

Wider Scope For Expansion

Without adequate capital, a company cannot expand its reach. The private limited structure provides founders with the ability to engage up to a maximum of 200 part-owners. This allowance most definitely solidifies the capacity of the company in procuring additional capital for growth and expansion. When the need for more capital arises, the owner can engage more shareholders onto the company’s board and scale up the business progress and profitability. One other benefit of incorporating a private limited company is that, unlike other business models, such entities can acquire Foreign Direct Investment up to 100% without any government approval. 

Sound Governance

Since privately held companies are regulated by the Ministry Of Corporate Affairs and governed by the rules laid down in the Companies Act 2013 and are required to adhere to strict procedures, authentically follow disclosure norms and stringently comply to the numerous legal obligations, there is for lesser scope for fraudulent accounting practices and other financial crimes such as embezzlement and money laundering. Hence, private limited companies should be preferred over other less stable business models such as partnerships as it extends greater protection and more benefits than other business structures.

Build credibility And Hold Professional Status 

Typically, a  private limited business is perceived as a more professional venture than an unincorporated proprietor or a partnership. This is credited to the transparent manner in which the reports of privately held companies are made public. Additionally, these registered companies need to provide a great deal of detailed information regarding its authorized capital, name of directors, registered office, structure, operational goals and finances to the Registrar of Companies, making them a more credible business less likely to behave unprofessionally in their dealings.  All details of a private limited company can be found on the public domain and hence lenders, vendors and prospective employees alike can be assured of its authenticity and reliability. 

It is best to engage a team of experienced business legal advisors to assist you in the process of registering a private limited company. You’re in luck because we found the right one for India. Look up Vakilsearch for more information! 

Also Read: how to register a company