Why Private Limited Companies are standing at ease in India

Starting you own business sounds every enthusiastic and sound little glamour, but in reality it is not that easy. There are lot of challenges which have to be faced by an entrepreneur to start and nurturing the business. And the biggest problem is that of choosing right form of entity because once the business starts, it is very difficult to switch to the entity.

As a general principle, normally private limited companies are considered to be the good option to kick-start the business plan. Private limited company is a privately owned business entity with limited liabilities. It is the most preferred form to start a business. The liabilities of shareholders or owner are limited to the invested capital in this form.

It is the preferred choice of business in Delhi for Startups who are planning to raise funding.

1. Limited liability of the owner:

When we talk about limited liability concept, almost all the business models except traditional partnership firm offer this feature. This feature of limited liability saves the entrepreneur from the occurrence of any default in the business.

2. Tax burden:

No entity is escaped from Tax. Every type of entity such as LLP, Private limited company, public limited companies are subject to tax at a flat rate which is 30% at present plus cess@3%, but in case of corporate structure if you are distributing dividends out of profit then again a tax called dividend distribution tax (DDT) is charged @ 17 appx. which is not applicable in case of LLP because the amount distributed as profits to partners are tax free in the hands of the partners. Therefore, this could be crucial factors in startup registration.

3. Ease of raising funds:

Process and sources of raising of funds in the private limited companies are easier because it can reach foreign market easily which is not possible in case of Limited Liability Partnership. Private equity investor and Venture capitalists have also biased views in favour of private limited companies for investment purpose because of clearly defined by-laws. Foreign borrowing like External Commercial Borrowings (ECBs) can not be raised by LLPs and partnership firms under RBI regulations.

Above listed factors are few important factors before choosing any form of entity. Depending upon your vision and keep these factors in mind, you can go for private limited company registration.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.