The business world is constantly changing, and more and more people are trying to launch their own companies in the modern era. The market is more competitive now than before the advent of the digital era, so having a solid business plan in place is crucial. Legally registering a firm is one of the most essential phases in the startup process. One of India’s most common business formats is a private limited company and for a good reason. Let us explore why setting up a register private limited company in India is the best course of action for your business.
Limited Liability Protection: Limited liability protection is one of the most important benefits of setting up a Private Limited Company in India. It means that the shareholders are only liable for the amount they have invested in the company and not for any losses beyond that. It protects the shareholders’ personal assets and offers a secure investment opportunity.
Separate Legal Entity: A Private Limited Company is a separate legal entity, which means it has its own identity in the eyes of the law. It can own property, enter into contracts, and sue or be sued in its name. It makes it easier to conduct business and protects the shareholders’ personal assets.
Credibility: A Private Limited Company has more credibility in the market as it is a registered entity. It instills trust in potential investors and customers, leading to more business opportunities.
Perpetual Existence: A Private Limited Company has permanent existence, meaning it will always exist even if its stockholders change. It makes it a stable and secure business structure and ensures business continuity.
Easy Access to Funding: A Private Limited Company can access various funding options such as bank loans, equity funding, and venture capital. It is easier to secure funding as investors are more likely to invest in a registered entity with limited liability protection.
Tax Benefits: A Private Limited Company in India enjoys several tax benefits, making it an attractive option for entrepreneurs and investors. Here are some of the tax benefits of a Private Limited Company in India:
Lower tax rate: The tax rate for Private Limited Companies in India is lower than for individuals. For Private Limited Companies, the current corporate tax rates are 25% for businesses with revenue up to INR 400 crores and 30% for companies with an income exceeding INR 400 crores. A lower tax rate can help the company retain more profits and reinvest them in the business.
Tax deductions: Private Limited Companies in India are eligible for several tax deductions, including expenses related to research and development, employee salaries, and other business expenses. These deductions can reduce the company’s taxable income and lower its tax liability.
Dividend distribution tax: Unlike other business structures, such as partnerships or LLPs, a Private Limited Company in India is not subject to dividend distribution tax. It means the company can distribute dividends to its shareholders without paying additional tax.
Carry forward and set off losses: A Private Limited Company in India can carry forward its losses for up to 8 years and set them off against future profits. It can help the company to reduce its tax liability in future years.
Capital gains tax: A Private Limited Company in India is subject to capital gains tax on selling its assets. However, the company can claim exemptions from capital gains tax if it reinvests the proceeds from the sale of the assets in certain specified assets, such as shares of other companies.
Transferability of Ownership: Transferability of ownership is a significant advantage of a Private Limited Company in India. The ownership of a company is represented by shares, which can be bought or sold by shareholders. In a Private Limited Company, the ownership is transferable, which means shares can be easily transferred from one shareholder to another.
It makes it easier to raise funds and exit the company. For example, shareholders who want to sell their shares can do so without affecting the company’s operation. The buyer of the shares becomes a shareholder and can participate in the company’s management.
The transferability of ownership also makes it easier to bring in new investors. A Private Limited Company can issue new shares to raise funds, and new investors can buy these shares. It helps the company expand and grow and allows investors to invest in a registered entity that offers limited liability protection.
Better Management and Governance: A pvt ltd company registration in india offers better management and governance structures than other business structures, such as sole proprietorships or partnerships. It is because a Private Limited Company has a formal management structure that includes a board of directors responsible for making decisions on behalf of the company.
The shareholders appoint the board of directors, which is responsible for setting the company’s strategic direction. It oversees the company’s management and ensures that it is run in compliance with legal and regulatory requirements.
In addition, a Private Limited Company must comply with various legal and regulatory requirements, including the Companies Act of 2013 and the rules and regulations issued by the Ministry of Corporate Affairs. It ensures that the company is governed in a transparent and responsible manner, which is essential for building trust with customers, suppliers, and investors.
A Private Limited Company must keep accurate accounting records and submit yearly financial statements to the Registrar of Companies. It ensures that the company’s financial transactions are correctly recorded and reported, which is vital for monitoring its financial health.
The formal management structure of a Private Limited Company also enables better decision-making. The board of directors is responsible for making strategic decisions, and the management team is responsible for implementing these decisions. It guarantees the effective and efficient use of the company’s resources.
Conclusion: In conclusion, registering a Private Limited Company in India is the best business move for various reasons. It offers limited liability protection, separate legal entity status, credibility, perpetual existence, easy access to funding, tax benefits, transferability of ownership, and better management and governance. These advantages make it an ideal business structure for startups and established businesses. So, if you want to start your own business or register your existing business, a Private Limited Company is the way to go.
