THE ADVANTAGES OF HAVING A PRIVATE LIMITED COMPANY AS BUSINESS

ORGANISATION
Unlike proprietorships and partnerships, private limited companies enjoy certain exemptions and
privileges, which are peculiar to their constitution and nature. A private limited company is
variously described as, quasi-partnership,family concern,close corporation etc. A private limited
company also has many advantages over proprietorships and partnerships, as elaborated below.
1. Limited Liability
First and foremost benefit of trading/doing business via a private limited company has always
been the limited liability conferred upon the company's directors and shareholders. As a sole
trader or partnership business, personal assets of the proprietor or partners can be at risk in the
event of a failure of the business, but this is not the case for a Private limited company. As long as
the business is operated legally, directors or shareholders personal assets are not at risk in the
event of any business indebtness or winding up. The unfortunate events like business failures are
not always under our own control. If a limited company becomes insolvent and is wound up only
the assets of the company are used to clear its debts. The officers of the company have no
personal liabilities and are not made bankrupt and are free to incorporate another company. By
contrast, if you do business as a partnership or as an individual, the creditors can claim on all
your property to satisfy the debts, and if this is insufficient you may be declared bankrupt. An
undercharged bankrupt is forbidden to start another business or to become a director of a
Private/Public limited company.
2. Legal Entity/Status or Recognition
A private limited company is a legal entity, a juristic person established under the Act. It has its
existence separate from its directors and members. Private limited company status enables you
to be taken more seriously than a proprietorship/partnership status does. Operating as a private
limited company often gives suppliers and customers a sense of confidence in a business. Larger
organisations in particular will prefer in dealing with private limited companies than
proprietorship/partnership organisations. Easy to attract quality workforce and achieve strategic
motivation of employees by using flexible and wide range of management designations.
3. Perpetual Succession
Another important characteristic of a private limited company is perpetual succession. It is a
popular saying that the directors may come and go the members may come and go, but the
existence of a company remains forever. A company once incorporated remains alive unless and
until it is wound up by complying with the respective provisions of the Act. The death, disability or
retirement of any of its
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the company, irrespective of change in its membership. There is no obligation for a Private
limited company to commence business/trading within any set time period after its incorporation.
4. Project Cost and Risk Factors
For entrepreneurs going for hi-tech or high capital outlay projects it is always advantageous to go
in for a company form of organisation. Where the financial stake involved is high, it is found that
banks and financial institutions while sanctioning financial assistance, insist on having a private
limited company.
5. Easy Transferability
Where it is proposed to sell the business as a going concern, all that is required is to transfer the
entire shareholding to the purchaser and thus facilitate easy change in management and
ownership. This will save time and money of the Promoters. Huge amount of stamp duty is saved.

6. Dual Relationship
In the company form of organisation it is possible for a company to make a valid effective contract
with
any of its shareholders/directors. It is also possible for a person to be in control of a company and
at the same time be in its employment. Thus, a person can at the same time be a shareholder,
director, creditor and employee of the company. For eg:
A) As a director he can receive remuneration.
B) As a shareholder he can receive dividend.
C) As a lessor he can receive lease rent.
D) As a creditor he can lend money and earn interest.
E) As a supplier he can supply goods from his/his family business.
7. Borrowing Capacity
A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as
well as unsecured, accept deposits from the public, etc. Even banking and financial institutions
prefer to render large financial assistance to the company rather than partnership firms or
proprietary concerns.
8. Taxation
Sole traders and partnerships pay income tax. Companies pay Corporation tax on their taxable
profits. There is a wider range of allowances and tax deductible costs that can be offset against
acompany's profits.