Starting a business is one of the most interesting and rewarding experiences of anyone’s life. One of the critical decisions made by the entrepreneur while starting this journey is the selection of the business entity. Entrepreneurs have a variety of business entity alternatives under Indian Company Law when starting a business. They can select the entity that best suits their needs, such as the amount of capital they want to spend, the burden of liabilities, the number of shareholders, and so on. Since the adoption of the Companies Act in 2013, a private limited company has been a very popular choice among businesses. It is also being chosen over Limited Liability Partnerships.
A private limited company brings a bag of benefits along with itself. A Private Limited Company is governed by the Companies Act and must adhere to several rules. As a result, there is a high amount of transparency in a private limited company’s operations, and investors have a lot of faith in them. As a result, it is simple to arrange funds. In terms of recognition, a Private Limited Company has a better reputation than an LLP in the eyes of third parties. One of the most significant advantages of a Private Limited Company is that it exists as a separate entity from its members, with its own set of liabilities. The company, not the members, would be responsible for the debts incurred by the company.
Not only this but with a Private Limited Company, the business expansion, and diversification model are simple to implement, however with an LLP, the options are limited. As a Private Limited Company has a higher market value and reputation, the sale value becomes more than an LLP, hence entrepreneurs are more inclined towards the option of a private company, when starting a new business.
Not only are there benefits for the owner but also the employees as well. Employee stock ownership plans (ESOPs) are an option that a Private Limited Company can provide to its employees. ESOPs are highly valued by employees since they give them a stake in the company. In the case of LLPs, this option is not available.
Even though LLPs are separate legal entities like private corporations, it is clear from the preceding considerations that private limited companies have an advantage over LLPs. The reason for this is that private enterprises are more well-regulated and have better investment and commercial options. As a result, many entrepreneurs are increasingly opting for private limited corporations rather than LLPs.