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THE ADVANTAGES OF HAVING A PRIVATE LIMITED COMPANY AS BUSINESS ORGANISATION

Unlike proprietorships and partnerships, private limited companies enjoy certain exemptions and privileges, which
are peculiar to their constitution and nature. A private limited company is variously described as, ëquasi-
partnershipí, ëfamily concerní, ëclose corporationí etc. A private limited company also has many advantages over
proprietorships
and partnerships, as elaborated below.

1. Limited Liability 2. Legal Entity/Status or Recognition


First and foremost benefit of trading/doing business A private limited company is a legal entity, a juristic
via a private limited company has always been the person established under the Act. It has its existence
limited liability conferred upon the company's separate from its directors and members.
directors and shareholders. As a sole trader or
partnership business, personal assets of the Private limited company status enables you to be

proprietor or partners can be at risk in the event of a taken more seriously than a proprietorship/partnership

failure of the business, but this is not the case for a status does.

Private limited company. As long as the business is


Operating as a private limited company often gives
operated legally, directorsí or shareholdersí personal
suppliers and customers a sense of confidence in a
assets are not at risk in the event of any business
business. Larger organisations in particular will prefer
indebtness or winding up. The unfortunate events
in dealing with private limited companies than
like business failures are not always under our own
proprietorship/partnership organisations.
control.
Easy to attract quality workforce and achieve strategic
If a limited company becomes insolvent and is
motivation of employees by using flexible and wide
wound up only the assets of the company are used
range of management designations.
to clear its debts. The officers of the company have
no personal liabilities and are not made bankrupt
3. Perpetual Succession
and are free to incorporate another company. By
Another important characteristic of a private limited
contrast, if you do business as a partnership or as
company is perpetual succession. It is a popular
an individual, the creditors can claim on all your
saying that the directors may come and go the
property to satisfy the debts, and if this is insufficient
members may come and go, but the existence of a
you may be declared bankrupt. An undercharged
company remains forever. A company once
bankrupt is forbidden to start another business or to
incorporated remains alive unless and until it is wound
become a director of a Private/Public limited
up by complying with the respective provisions of the
company.
Act. The death, disability or retirement of any of its
members does not affect the continuity of the any of its shareholders/directors. It is also possible for
company, irrespective of change in its membership. a person to be in control of a company and at the
There is no obligation for a Private limited company same time be in its employment. Thus, a person can at
to commence business/trading within any set time the same time be a shareholder, director, creditor and
period after its incorporation. employee of the company.
For eg:
4. Project Cost and Risk Factors A) As a director he can receive remuneration.
For entrepreneurs going for hi-tech or high capital B) As a shareholder he can receive dividend.
outlay projects it is always advantageous to go in for C) As a lessor he can receive lease rent.
a company form of organisation. Where the financial D) As a creditor he can lend money and earn interest.
stake involved is high, it is found that banks and E) As a supplier he can supply goods from his/his
financial institutions while sanctioning financial family business.
assistance, insist on having a private limited
company. 7. Borrowing Capacity
A company enjoys better avenues for borrowing of
5. Easy Transferability funds. It can issue debentures, secured as well as
Where it is proposed to sell the business as a going unsecured, accept deposits from the public, etc. Even
concern, all that is required is to transfer the entire banking and financial institutions prefer to render large
shareholding to the purchaser and thus facilitate financial assistance to the company rather than
easy change in management and ownership. This partnership firms or proprietary concerns.
will save time and money of the Promoters. Huge
amount of stamp duty is saved. 8. Taxation
Sole traders and partnerships pay income tax.
6. Dual Relationship Companies pay Corporation tax on their taxable
In the company form of organisation it is possible for profits. There is a wider range of allowances and tax
a company to make a valid effective contract with deductible costs that can be offset against acompany's
profits.

"Small opportunities are often the beginning of great enterprises"

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