A company’s business structure is one of the most fundamental aspects, as it dictates all future company operations. When starting a company, it is legally required to register it under various Indian laws. Among numerous business structures, private limited companies are ideal for small and medium organisations.
A private limited company is one of the most common business structures and provides numerous benefits after registration to a business owner. If you are considering starting a business, you can consider registering it as a private limited company. This blog will help you understand the importance of registering a private limited company.
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What is a private limited company
A private limited company is a business entity privately owned and operated by a limited number of shareholders. These shareholders own 100% of the company shares and are barred from trading them publicly. A private limited company is ideal for small and medium-sized businesses and provides operational and managerial flexibility to its owners. The Ministry of Corporate Affairs identifies a business only after it is registered using the set registration process.
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What is the importance of registering a private limited company
Listed below are the points explaining the importance of registering a private limited company:
Separate legal identity
Registering a private limited company makes it a separate legal entity. Once the company is registered, it is identified to have a distinct existence from the owner. Because of its legal separate entity, it can own property and take debts in the company’s name, not the owner’s.
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Loans
Most private limited companies take loans from banks and NBFCs to start their business, as it requires considerable capital. However, financial institutions only provide loans to legally registered entities that have proper licenses and documents. Hence, it is important to register your private limited company to ensure you can take loans to have sufficient capital for your business.
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Limited liability
Limited liability is one of the most beneficial factors of registering a private limited company. Under limited liability, the company’s owners and shareholders are only responsible for its debts up to the amount they have invested or agreed to contribute. Their personal assets are protected and cannot be used to pay off the company’s liabilities. Limited liability also limits the owners’ financial exposure in case the company goes bankrupt or starts insolvency proceedings.
Easy transfer of shares
Registering a private limited company means that the shareholders are limited and registered under proper laws. Since a limited number of shareholders privately own the shares, it is easy to transfer them from one shareholder to another. They don’t have to file extensive paperwork or submit documents to transfer the shares, providing convenience.
Owning property
When a private limited company is registered, it becomes a separate legal entity. The company can buy property in its name, and no shareholder can claim the property owned by the company. This helps protect the business and its assets in case of a dispute among the shareholders.
Legal capacities
Once the company is registered, it starts to have legal rights as per the relevant laws. This means that the shareholders are separate from the company, and the company can sue or be sued in a court of law. Legal capacities help the shareholders and the company by proving legal rights in case of disputes or any other situation.
No minimum and maximum capital requirements
A registered private limited company has the right to borrow funds from financial institutions or any other recognised online marketplace or platform. However, there are no minimum or maximum capital requirements for an owner to start a private limited company. The owner can use personal funds to start the business or take a loan to invest in the company.
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Conclusion
A private limited company provides numerous benefits to shareholders and owners and comes with limited liability to offer financial protection in case of solvency. Registering a private limited company makes it a separate entity, allowing the company to own property and have legal rights. You can register a private limited company using the online process to enjoy its benefits and flexibility.
