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Advantages of a Private Limited Company

Advantages of a Private Limited Company

Legal & Compliance

Ravi Kariya

Ravi Kariya

4 Apr 2018, 08:51 — 8 min read

A company is an artificial person created by law. It is not a human being but it acts through human beings. It is considered as a legal person who can enter into contracts, possess properties in its own name, sue, and can be sued by others etc. It is called an artificial person since it is invisible, intangible, existing only in the contemplation of law. Since a company is the creation of law, it is an artificial juridical person; it is clothed with many rights, obligations, powers and duties prescribed by law; it is called a ‘person’. In such a situation, it possesses only the powers conferred upon it by its Memorandum of Association, which is the charter of the company. Within the limits of powers conferred by the charter, it can carry out all acts as a natural person may do.

 

A private company may be formed for any lawful purpose by two or more persons, by subscribing their names to a memorandum and complying with the requirements of this Act in respect of registration

 

The benefits of a private limited company are:

 

Corporate personality

A company is vested with a corporate personality, so it bears its own name, acts under that name, has a seal of its own, and its assets are separate and distinct from those of its members. It is a different entity from the members who compose it. Therefore it is capable of owning property, incurring debts, borrowing money, having a bank account, employing people, entering into contracts, and suing or being sued in the same manner as an individual.

 

Company as a person

A company is an artificial person created by law. It is not a human being but it acts through human beings. It is considered as a legal person which can enter into contracts, possess properties in its own name, sue and can be sued by others etc. It is called an artificial person since it is invisible, intangible, existing only in the contemplation of law. It is capable of enjoying rights and being subject to duties.

 

Limited liability

The privilege of limited liability for business debts is one of the principle advantages of doing business under the corporate form of organisation. The company, being a separate person, is the owner of its assets and bound by its liabilities. The liability of a member as shareholder extends to the contribution to the capital of the company up to the nominal value of the shares held and not paid by him. Members, even as a whole, are neither the owners of the company’s undertakings, nor liable for its debts.

 

Perpetual succession

An incorporated company never dies, except when it is wound up as per law. A company, being a separate legal entity, is unaffected by death or departure of any member and it remains the same entity, despite total change in the membership. Perpetual succession means that the membership of a company may keep changing from time to time, but that shall not affect its continuity.

 

Capacity to sue and be sued

A company being a body corporate, can sue and be sued in its own name. To sue, means to institute legal proceedings against (a person) or to bring a suit in a court of law. All legal proceedings against the company are to be instituted in its name. Similarly, the company may bring an action against anyone in its own name.

 

Over and above the aforementioned benefits, there are also certain exclusive benefits which are only available to a Private Limited Company. These are mentioned as below:

  • Financial assistance can be given to its employees for purchase of or subscribing to its own shares or shares in its holding company

  • At the time of annual filing, no need to prepare a report on the Annual General Meeting.

  • At the time of annual filing, no need to prepare a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors.

  • Private company need not have more than two directors.

  • There is no need to appoint independent directors on its board.

  • Retire-by-rotation is not applicable to a private limited company.

  • Restrictive provisions regarding total number of directorships which a person may hold in a public company do not include directorships held in a private company which is neither a holding nor subsidiary company of a public company.

  • The provisions relating to contract of employment with managing or whole-time directors does not apply to a private company

  • Total managerial remuneration payable by a private company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year are having no restrictions.
  • Certain tax planning steps during the year can give you extra monetary benefits like:
    • Salary to Director can be claimed as “Expenditure” in the hands of company and is exempt in the hands of individual under prescribed limit.
    •  A company may pay sitting fee to a director for attending meetings of board or committee thereof. Such sums as may be decided by the BOD thereof which shall not be exceed 1 Lakh per meeting of the board or committee thereof which can be claimed as “Expenditure” in the hands of company and is exempt in the hands of individual under prescribed limit]
    • Deductions of Startup Expenses (Preliminary Expenses) can be claimed and taxes can be save
    • Deductions of Rent expense if property/office is on rent can be claimed as “Expenditure” in the hands of company and is exempt in the hands of individual under prescribed limit.
    • Salary expenditure of a Family Member deductible in the hands of company and exempt in the hands of individual under prescribed limit i.e. Dual savvy of tax
    • Entertainment expenses, Meeting expenses and Director’s Vehicle Expenses accounted in the books of the company can also be claimed as deduction. 

Recently the Ministry of Corporate Affairs (MCA) brought about a transformational change in the company name reservation and incorporation processes. The project to transform the processing of Company Incorporation e-Forms was undertaken  wherein the Applications for Name reservation and incorporation of a company are processed and completed within 24 hours (one working day) in line with global best corporate practices. In this competitive business world, a private limited entity is the most appropriate medium for business expansion and growth bringing along with it some crucial benefits like:

  • Ease of procurement of funds

  • Attracting investment opportunities.

  • Business expansion and diversification.

  • Credibility and recognition

  • Better compliance and good governance

  • Taxation benefits

 

To explore business opportunities, link with me by clicking on the 'Invite' button on my eBiz Card. 

 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.   

Posted by

Ravi Haresh Kariya

EbizFiling.com is a motivated and progressive firm managed by like-minded people. It helps a variety of small, medium and large businesses to cater to all compliance requirements...

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