What Business entity should I start? [All About Private Limited Company Incorporation]

By now you know about doing business along (sole proprietorship firms) and when multiple people are involved (partnership businesses). We have also looked at pros and cons of having limited and unlimited liability. Let’s now look at one of the best and most popular form of doing business in India – Private Limited Company. Check this out to know why this is the most preferred way of doing business in India.

Private Limited Company (PLC)

PLC has been the most favorite face of serious business in India. Until sometime back this was the starting point for any limited liability business. Since this has been there for ages, people are very well aware with various laws, implications, processes and are highly comfortable dealing with a PLC in any form.

Many large enterprises in India are said to have this internal policy of doing business with only Pvt. Ltd or Public Ltd companies. This means anyone who wants to do business with these large enterprises should be registered as either a Pvt. Ltd or a Public Ltd – An important point for you to consider if you are targeting this segment as your customer base.

As said above, all forms of risk capital (angel, seed, venture etc.) have been associated till now with PLC. It is possible to convert a PLC to a Public Ltd. and then list it on stock exchanges.

PLC have more or less the same compliance as other businesses described above (except in few scenarios, the frequency of tax payments or return may be quicker as compared to a Propx business). The annual returns needs to be audited before filing with authorities and anyone can download these documents for analysis or inspection by paying a fee and following a prescribed process. This has been a big reason why PLC enjoys such a great reputation and branding. There is a great level of transparency and trust and this helps all stakeholders to trust a PLC.

PLC addresses scalability challenges with ease. You can associate more and more people and delegate powers/ controls to them with clearly defined roles and responsibilities, which helps scale the business multifold with ease.

PLC has been favorite business entity with startups too. The branding associated, ability to raise risk capital (funds), impression on the current and possible employees to ease some of the hiring challenges, ability to share wealth with employees inform of ESOPs, international class branding, clear and crisp policies and practices etc. have been few factors for success of PLC.

If you register a business as PLC, the only time you should probably look at changing the business entity is when you are going Public.

Public Limited Company (Ltd)

Ltd company is the highest in order (nothing beyond this available in India currently). Most big businesses are Ltd and they mostly trade in public stock exchanges.

You can raise money from public, can accept deposits from them, manage a very large capital base and the best in class branding available. There are some additional requirements and compliance that Ltd should follow to ensure greater transparency in their dealings and in large interest of public.

We shall not dwell much on this now, as this may not be relevant for most of the startups.

We hope, you now have a good understanding of various business types and should be able to decide as to which one is best suited for you. We still recommend talking to a Chartered Accountant or an expert and validating your decision before starting.

From the company incorporation series:

[Guest article contributed by eLagaan. eLagaan offers end to end CA, CS, Business Legal & Payroll services for businesses. It specialises in formulating investor friendly structures & terms, staying compliant, setting up best practices desired by founders, investors & employees. This facilitates businesses to grow & scale with ease and stay fundable, saleable and compliant.]

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