One of the essential decisions startups need to make when starting their business is in the organization of the business. Many startups face a dilemma whether to choose Private Limited Company or Limited liability Partnership (LLP). The decision you make will determine how the business is taxed, who can share ownership of the firm and who is held accountable for the company’s debts. The essentials enumerated in this article will guide you to decide on the structure of business.
What Is A Private Limited Company?
A Private Limited Company is a form of business of not less than two members. The members hold all shares of the corporation themselves or hire managers for the business management. Forming a Private Limited Company helps in protecting personal assets, financial assistance, and access to resources
What Is an LLP?
An LLP is a corporate business that provides not only the benefits of a company but also the flexibility of a partnership firm. No member is made liable on account of the actions of other members, and other partners do not create joint liability.
The Benefits of Choosing Private Limited Company Over LLP.
To Attract Funding – Funding is vital for starting and growing a business. Partnership firms, proprietorships, and LLPs are unable to attract equity funding since they cannot issue shares. This drawback could be critical in the growth of business.
Limited Liability – The utmost benefit of a Private Limited Company is limited liability. These companies are responsible for all debts and are handled as a single entity. If something happens to the business, its members are only liable for outstanding shares, and they’re not personally affected.
Tax Advantages – In addition to limited liability, private limited companies enjoy tax benefits. These companies tend to be exempt from higher income tax rates and they pay corporation tax on their taxable revenues. Forming a Private Limited Company opens the door to more tax-deductible allowances and expenses redeemable against profits.
Business Credibility – Today, investors, vendors, and customers look for credibility in the startups they are dealing with. In forming a Private Limited Company, company’s information such as the status of the company, name, date of the corporation, registered office address, and other information is made available to a public database. Authenticating the existence of the business is made easy by this feature.
Ability To Pursue Multiple Opportunities – Thriving entrepreneurs are often serial entrepreneurs, who go on to duplicate the accomplishment they have in business in several other ventures. It is hard for proprietorship or partnership businesses to pursue such opportunities, as they are tied to the promoter, and they are not separate legal entities. On the other hand, a private limited company would let the developer pursue numerous opportunities as the business develops over time.
An Exit Plan – Many entrepreneurs while starting their businesses only think about enlarging their startups and never have an exit plan. Private limited companies present the best form of an exit strategy for all promoters. Only shares of a company are transferable or sold in whole or in part to another entity quickly without any hassles. A private limited company provides a huge edge in sketching and executing an exit plan for the business.
Preference of Investors
Many Investors and venture capitalists prefer Private Limited Company over LLP because it gives much easier investment opportunities and thus capital can be raised quickly compared to an LLP. If you have a business startup and would like to raise venture capital, a Private Limited Company is your safest bet.
Register Private Limited Company in India
Choosing a legal structure that suits your business needs is important. Consider the pros and cons of each structure. One of the key benefits of launching a business in the design of a Private Limited Company is that all members involved viewing your business with credibility and respect. If you plan to grow quickly, and trade equity in the future, a limited company is a way to go.
You can also register LLP in India.
Image Credit: Unsplash