A private company is most common line of doing business which aims to earn profit and also to enjoy the benefits of incorporated entities. It is a successful business model. Owners hold all shares of the company. It also results helps to protect the personal assets. The following advantages may force an individual to form a private company for doing a trade:-
A private is easy to form as it requires only two members and shareholders with capital of Rs.1,00,000 only. The company could start its operations after getting Certificate of Incorporation only; there is no need to wait for Certificate of Commencement which is required by a public company.
The legal formalities to be followed are less in Private Company as compared to Public Company. It can avail many exemptions and privileges under the company act. The operations of the company can be pursued easily.
The management of a private company consists of less number of members, only family members and friends form a private company. The decision making is prompt as for a decision less number of people are involved as a same person can act as shareholder, director or the employee in a private company.
Unlike a public company, private company’s need not to publish its documents and other files in front of the public. So a private company is better to keep secrets of the company.
The liability of the members of the private company is limited i.e. their private assets and properties cannot be taken over for paying the dues of the company. The liability is limited to the value of shares. This helps the company to take more risk.
Feeling of belongingness
There is separation between management and owners but it is too less than a public company so there is a feeling of belongingness in the employees of the company for the company which is beneficial as a general interest of the company.
A private company enjoys tax benefits also as these companies have to pay corporate tax on taxable profit and tend o be exempt from higher personal income tax rates. There are more tax deductible expenses and allowance available to private company instead of a sole trader.
Ease in raising funds
Shareholders allowed in a private company are 200 and this number of people makes it easier to raise funds. Private companies can issue debentures as well as get loans from the banks easily as the main motive of a private company is to make profits, the investors and banks can trust a private company more than any other form of concern moreover private company can provide collateral very easily. With more resources large scale production can be done thus reducing cost which leads to more profits.
It is said that members may come members may go, the company will go on forever. It means the death or inability of any member will not affect the status of the company. The continuity of the company could only be discontinued in case of liquidation.
A company is legal entity i.e. it is considered as a separate person on the eyes of the law. It is an artificial person. It has wide legal capacity and it can also own a property in its own name. It is different from its members. No shareholder can claim upon the property which is on the name of the company.
Capacity to sue and to be sued
Sue means a legal proceeding or to bring in the court for a legal suit. Same as a person a company can bring a legal suit against another person and another person can also take the company to court for any of its action.
Useful Links to Know more about Formation & Registration of Private Limited Company
|Company Important Pages||Check Here|
|How to Form a Private Limited Company||Check Here|
|Documents Required to Form a Private Limited Company||Check here|
|Company Income Tax Rates||Check Here|
|TDS on Payment to Foreign Company||Check Here|
|Cost to Form a Private Limited Company||Check Here|
About the Author
Arpit Goyal is pursuing CA and B.com & also working as an article assistant in Gurgaon. He has an immense interest in Taxation. He loves to use technology to spread knowledge about taxation & accounts.