What Are The Pros & Cons of A Private Limited Company?

You have a sound business plan and are soon to make the leap. Excellent!  One of the really quite significant early choices you will have to make is choosing the right structure for your company.  Most small businessmen choose a private limited company. But what in the world is it, and do you wish to do so? This article, by startup consultant Startupflora, simplifies the advantages and disadvantages of a private limited company into terms so easy that even school kids can understand! 

What is a Private Limited Company? 

Imagine a bunch of mates coming together to build a lemonade stand.  A private limited company is the same, but bigger.  It's a company where a group of people (your mates) come together and build a company.  Their ownership is split up into shares, like pieces of the lemonade stand.  The shares aren't traded on the stock market – that's why it's "private." 

The Sweet Stuff: Benefits of a Private Limited Company 

But now let's discuss the "good" stuff – why exactly a private limited company is so cool with so many: 

• Limited Liability: It's a doozy! Just think of it as a safety net under you. When the lemonade stand (your business) makes a mistake, your friends (the owners) can only lose what they invested. Their own stuff (like their bike or games) isn't at risk. It's a really big benefit compared to other companies. 

• Separate Legal Entity: The business is an individual in law. It can sue and be sued, and make a contract, all separately from the owners. 

• Easier to Raise Funds: Investors prefer it more as a vehicle for investment due to limited liability as well as ownership by name. They feel that it is like they are in a better position with their money. 

• More Credibility: Your company will be more professional and credible to customers and suppliers. It's having that nice sign over your lemonade stand! 

• Growth Opportunities: The form of a private limited company is such that it will be easier to grow and expand your business. 

The Not-So-Sweet Stuff: Disadvantages of a Private Limited Company 

Okay, now let's talk about the "cons" – things that will make a private limited company less attractive: 

• Longer Setup: Private limited company setup involves more lengthy papers and formalities than some other businesses. It is similar to obtaining all the permits for your lemonade stand. 

• Higher Costs: Setup cost and compliance cost is higher. It is similar to the cost of the nice cups of lemonade. 

• Additional Rules: There are more rules and regulations that a private limited company must adhere to than some other types of businesses. It is practically like the health inspector visiting your lemonade stand every day. 

• Less Private: Certain aspects of the company, such as its accounts, are revealed. 

• Harder to Sell Shares: Selling shares in a private limited company might be harder than selling shares in a listed company. 

Taking the Right Decision: Is a private Limited Company for You? 

Don't downplay the importance of making the right business structure choice.  A private limited company is perfect for businesses that wish to expand, issue shares, and limit liability.  But better safe than sorry to make an informed choice and compare the pros and cons against your own personal needs and circumstances. 

Having Problems?  Startupflora Can Help! 

Startupflora being a startup consulting firm, can assist you with PVT limited registration, . We provide a complete end-to-end company registration service so that everything goes on as planned without any obstruction. If you must register PVT LTD company in India, want to know how to register, or simply want company registration guidance in India, we are here. We can assist you on how to register PVT LTD  company and walk you through all the steps.  Call us now for a consultation!