If you are an entrepreneur and looking forward to starting a business in India, it is very important to understand which are the business types available for your business registration and which one will work best for you considering you are going to be a Startup Founder.
In this article, we shall discuss why to register a Private Limited Company and not any other business Structure for your startup business.
As per some reports and research that have been done in India, it has been found that we are the second largest country where we have the second highest number of unregistered businesses in the world. When a person does business in the unregistered form of business, the person and business are not different and are considered the same for the sake of liability.
On the other hand, if you are having your business in the registered structure, you always get that immunity for yourself. In the company form of business, we see a term being used which says separate legal entity. Let us study it in detail.
Separate Legal Entity and Limited Liability:
It means that the company is different from its management and shareholders. It has its own existence and it can sue and be sued in its own name. A company is a separate legal entity and it continues in perpetual succession which means that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. This also helps while there remain creditors to the company. Unlike unregistered businesses, the person running the company is safe and his personal accounts and properties are safe.
Easy Transfer of Ownership:
In a private limited company, you can always exit your business by transferring your shares in the name of other persons or businesses which means that it is very easy to sell off your shares if another party is interested to buy your holding. Under a sole proprietorship business, ownership can not be transferred and only assets can be sold out. However, if you have a private limited company, the transfer of shares is quite easy.
Investor Friendly:
For any business which gets the funding you will find 99% of funded entities are private limited companies. There are various reasons for this. Most of the Angel Investors/ VCs firms that invest in early stage, as well as growth stage startups, are private limited companies. For them, private limited companies give them various options as an instrument to invest in like equity, debts, grants and convertibles. The recent example of Shark Tank India very much has affinity where Startup Founder(s) come to pitch their business and offer a certain percentage of equity in exchange for some funding.
Popularity, Trust and Brand Recognition:
Private Limited Companies are the most popular form of business. If you talk to anybody and tell them that you are running a company, they are very much familiar with the company form of business which also works as a building trust mechanism. Not only this, but it also gives you brand recognition. A Private Limited Company can also apply for Startup India Recognition under DPIIT.
Valuation of Business:
In private limited companies, it is easier to do the valuation unlike in unregistered firms where firms are no different from their proprietors or partners. Moreover, any person who is interested in your business would love to invest in your company and take your business valuation to hikes. Also, in a company, you can reach any valuer who will tell your company valuation basis on your business in the past or on the projected basis looking after your business traction or the investment in technology.
Opening of Business Current Account without GST:
If you have an unregistered business and if you approach any bank for opening a current account of your business, bankers tend to ask you to take GST Registration even if your threshold has not reached 20 Lacs turnover required for the mandatory registration in the general case. On the other hand, if you are to open a current account for your private limited company, GST is optional for you. In fact, as per the new changes brought in by MCA, during the company registration process itself the promoters have to select the preferred Bank for the opening of the current account. The moment your company is registered, you also receive a communication from the bank about getting your company’s current account number.
If you are still not sure, why to register your private limited company, you are welcome to connect with us at 9988424211 or email us at [email protected] and someone from Compliance Calendar LLP will help you in the consultation free of cost.
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