A Proprietorship is the most popular business entity established in India due to its minimal compliance requirements. As the business consequently grows, its revenue generate will be deemed excess, therefore requiring the sole proprietorship be converted to a Private Limited Company in order to avoid filing personal tax or to have multiple bank accounts to restrict the liability.
Converting a sole proprietorship firm to a private limited company separates the risk as the new entity is considered separate from the person(s) and assumes all the risks of liability, and awards the members protection, except in the case of fraud.
Governed under the Companies Act, 2013, the shares of a Private limited company are not distributed to the public. It also enjoys a unique structure of taxation as the income is considered the company’s and not the individuals, under the Income Tax Act, 1961.
Established via Companies Act, A Private Limited Company is an authorized person and a legal entity. Legal attributes like opening a bank account, hiring of employees, taking on equity and other privileges are included in the company as an independent corporate entity. Members (Shareholders/Directors) will not be awarded the risks or liabilities from the creditors of the company as these a borne by the company.
A company being a separate legal person, is unaltered by the departure or demise of any member and it remains to be in existence regardless of any modifications in the ownership. Private Limited Company enjoys ‘perpetual succession’ which means, the existence will not be interrupted until it is legally dissolved.
Private Limited Company remains in existence until it gets legally dissolved as it enjoys perpetual succession. The death or departure of any partner will not affect the PLC as it is a separate legal person. Regardless of any modifications in ownership, a PLC remains in continuation or maintains uninterrupted existence.
By transferring the shares in a company, ownership of the business can be transferred easily. In order to effect share transfers in a private limited company, the consent of the other shareholders may be required.The process of signing, filing and submitting a share transfer form and share certificate are adequate.
Private Limited Companies can issue preference shares, equity shares, debentures and accept deposits with the RBI’s permission. They also raise equity funds additionally. As opposed to a partnership or proprietary concern, Financial institutions and Banks prefer to provide funding to a Private limited company.
Being an artificial person, Private Limited Company can obtain, own, sell and enjoy property in its name. Shareholders cannot claim the property of the company, as long as the company is an ongoing concern. Tangible assets like machinery, land, building, residential property, factory and intangible assets like shares, rights, etc., can be property owned by the company.