When it comes to start up, the most frequent and common question asked by them is the choice of business entity. In this article, we look at 5 reasons you should opt for a Private Limited Company:

Why Private Limited Company Is Preferred

  1. Limit the Risk to Personal Assets

Where a business owner has “limited liability” protection, it means that only the assets of the business are at risk, and not the promoter’s personal assets such as personal bank accounts, cars and houses.

  1. Improve Business Credibility

If a business is started as a proprietorship or partnership firm, the business is not registered with the Ministry of Corporate Affairs and cannot be located in the online company or LLP databases. Whereas, if a business that can be located on the MCA Portal, makes it easy to authenticate the existence of the business, improving business credibility.

  1. Funding

Proprietorships, partnership firms, and Limited Liability Partnerships cannot issue shares, and are thereby unable to attract equity funding. This disadvantage could be critical in the growth stages of a business.

  1. Acceptance of Foreign Payments/Investments

In a Private Limited company, any foreigner can become a shareholder and can easily route the money from a foreign country to India but in LLP there are many restrictions.

Private limited companies and limited companies are the only types of entities that allow for Foreign Direct Investment of upto 100% through the automatic route, meaning, any foreign entity or foreign person can invest in a company without any prior government approval.

  1. Sense of Ownership

In a Private Limited company, shareholder contributes the amount and gets shares of the company but in LLP, every time partners contribute the amount and do not come up with the result, there is conflict over who the major partner is or who is the minor one.

So make sure to register a company in India and put in all your efforts to make the start up a Private Limited Company.