What are the pros and cons of a Private Limited Company?
Posted: Nov 16, 2020
If there is one thing certain about start-ups and other business owners, it’s that their favourite form of business entity is a Private Limited Company. Whether you’re just starting up or you’re an established fellow, registering a private limited company is always seen as a winning move. However, there is always the bad with the good, or as they say, the pros with the cons.
So, what are the pros and cons of a Private Limited Company?Pros of a Private Limited company
People go through the private limited company registration process because of the following pros:
- No requirement of minimum capital: If someone comes to you and tells you to start a business organization without any money, would you reject that offer? Yes, you will. However, that’s not the case with a private limited company. The incorporation of a private limited company is absolutely free of cost.
- A company is a separate legal entity: Once you register a company, it becomes a separate legal entity from its directors. It can own its own assets, but its own property and file its own cases. These might not look like a pro, but down the line, you’ll understand when you receive many tax rebates.
- It makes raising money easy: Because people tend to trust you if you’ve registered your private limited company, they don’t have any problem in investing in you. From Venture capitalists to banks, if you’re a private limited company, they would see you as a golden geese.
- Foreign investors are welcome: One of the reasons that people like a private limited company so much is the freedom to choose outside investors. You only need "one" Indian director to register a private limited company. If the rest of the directors are foreigners, that’s not an issue.
Not everything is sunshine and ice-cream in this dreamland called private limited company. Sometimes, there are certain cons that have appeared like a wakeup call to many:
- Limited Number of shareholders: There is a limit to how many shareholders you can have maximum in a private limited company. if you’re thinking about going beyond 20, you can forget it, you’re not allowed to.
- Non members can’t invest: No one outside the members can become the shareholders of a private limited company. You can’t offer general public shares of your business. If you ask them for shares, they have to be the part of your company.
- Too many compliances: Running a private limited company is no simple matter. You have to be file every compliance when the MCA asks of you. They are not optional and not doing so would disrupt your business.
A private limited company is seen as a holy grail by many, but also know that this nectar is also a poison for some. That being said, the positives of a registering a private limited company are more than it has negatives. As such, would you start your own pvt ltd company?
Vicky kumar is a company analyst in IP1 License.