Private Limited Company
Best for: Entrepreneurs seeking to scale their business, attract investors, and limit liability.
Key Features:
- Ownership: Can have multiple shareholders (private individuals or entities), but the shares cannot be publicly traded.
- Liability: Shareholders’ liability is limited to the amount unpaid on their shares. This protects personal assets in case of business debts.
- Control: Managed by a board of directors, though the majority shareholders usually have control.
- Taxation: Companies are taxed as separate entities, and profits are subject to corporate tax rates which are lower than partnership firm/LLP. Dividends distributed to shareholders are taxed separately at the shareholder level.
- Registration: More formal and comparatively costly to register, with specific requirements for compliance, such as holding annual general meetings, filing annual returns, and maintaining financial records.
Advantages:
- Limited liability protects shareholders’ personal assets.
- Easier to raise capital by issuing shares.
- Perpetual existence; the company continues to exist even if shareholders or directors change.
Disadvantages:
- Higher setup and compliance costs.
- More regulatory requirements and formalities.
- Less control over day-to-day operations compared to smaller structures like sole proprietorships or partnerships.
When to Choose a Private Limited Company?
If you plan to scale your business and need to attract investors or raise capital.
If you want limited liability protection and are willing to comply with regulatory requirements.