Private Limited Company Registration in India- Advantages and Disadvantages

Private Limited Company Registration

 

Private limited company registration is one of the most popular forms of entity registration in India.

 

In this write up, we would be discussing about some of the advantages and shortcomings of the private limited company registration in India.

 

Some advantages of private limited company registration

 

1)      Liability of its members are limited

 

As the name suggests, in case of private limited companies, the liability of its members or shareholders are limited to number of shares held in the company. Therefore, in case of any unforeseen circumstances, if the company defaults, the members would be liable to pay on the behalf of the company only up to the amount of capital held by them. In case of partnership, each partner is fully liable to pay in case of any default by the partnership firms.

2)      Start-up India Scheme

The benefits of startup India scheme are available to private limited companies, Limited Liability partnerships and firms. Accordingly, it is suitable for registration under such schemes

 

3)      Investor friendly

 

These entities are preferred by the investors for making investments like angel investors, venture capitalists, private equity investors etc. This makes it most popular form of entity registration as compared to other entities like partnership firms and LLPs

 

4)      Low taxes

 

Another benefit of private limited companies are that they are taxed at low rates of 15%/22% and 25% depending upon nature of business they are engaged in whereas LLPs and partnership firms are taxed at 30%

 

5)      Foreign company registration

 

Foreign companies opting for setting up business in India looks for incorporation of wholly owned subsidiary and private limited companies are suitable for such form of entities. Accordingly, they are preferred mode for subsidiary company registration in India.

 

 

6)      Ease of operations

The process of company registration is online without any physical interface. Further, all the changes like addition of new director or retirement of director or change in name or objects clause etc. can be done online. This makes the entire process quite smooth and easy.

7)      Brand and Credibility

It enjoys brand as compare to other forms of entity. Also, since it is subject to yearly statutory audits, it has more credibility before investors, bankers and outside parties

 

 

Some disadvantages or shortcomings of Private Limited Company

 

Although there are many advantages of private limited company registration as mentioned above, however, there are some shortcomings or disadvantages as mentioned below:

 

a)      Compliance cost are relatively higher

 

Since private limited companies are subject to yearly statutory audits and ROC compliances, its compliance costs are relatively higher as compared to other forms of entities. However, since these companies are subject to such audits, they have better credibility and authenticity in the eyes of outside users like bankers, investors etc. and they can easily avail loans and other funding as compare to other entities.

 

b)     Closure of winding up of private limited companies

 

Companies with no transactions or limited assets can be easily wound up or closed. However, companies having large asset base or accumulated reserves cannot be easily wound up and it is time consuming process as well as quite expensive too.

 

Thus, from the foregoing it may be concluded that private limited company registration has many advantages due to which it has become one of the most preferred mode of company registration in India.