WHY SHOULD I OPEN A COMPANY?
- JKR Business Consultancy
- Oct 8, 2022
- 2 min read
What are the benefits to opening a company?
There are 2 popular types of Companies – Private Limited and Public Limited. A Private Company is a corporate entity with limited liability of members. A Public Company is defined as a Company which is not bound by the restrictions placed on a Private Company. However it shall have a minimum of 7 members.
A Private Company has three defining characteristics,
It shall have a minimum of 2 members and at no time shall the members exceed 200 in number.
It shall impose restrictions on transferability of its shares.
It shall not invite the public to subscribe to any of its securities.
Why Choose A Company?
1. LIMITED LIABILITY
The most important feature of a Company is the concept of Limited liability. This means that if the company goes bankrupt, the shareholders' assets are protected.
The shareholders are only liable for the money they put into it.
2. SEPARATE LEGAL ENTITY
Under the Act, a Company is a legal entity and a juristic person, i.e. it has a distinct and real existence. A juristic person is someone who isn't a natural or a human being. As a result, a Company has broad legal capacity and can own property as well as incur debts. The Members and Directors have no liability to the Company's creditors for such debts.
3. BORROWING POWER
A Company has more options for borrowing funds. It can issue debt securities such as debentures and can also accept deposits from the public, etc.
Even banking and NBFC institutions prefer to lend money to Companies as opposed to partnership firms or sole proprietorships.
4. TRANSFERABILITY OF SHARES
A shareholder's share are transferable to any other person. When compared to the transfer of an interest in a business run as a partnership or sole proprietorship, it is much easier. In case of Private company some restrictions are placed such that the approval of the Board shall be required for effecting the transfer.
Transferring shares is as simple as filling out and signing a share transfer form (in Form SH-4) by both Transferor and Transferee. Then the share transfer form and share certificates will be presented to the Company for effecting the transfer and entering the new shareholder in the Register of Members.
Private limited companies have a number of significant advantages that may be very helpful for all types of businesses. Companies can benefit from limited liability, tax benefits, and more corporate credibility by incorporating and following the necessary procedures. Additionally, it is considerably simpler for private limited firms to raise funds from shareholders as well as outside investors.
Given all these advantages, it is simple to understand why this type of business entity is well-liked by start-ups and small businesses.
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