The proprietors of a private limited company (PLC) have limited liability, its main benefit. This indicates that the shareholders’ assets are safeguarded in the event of a firm collapse. The owners’ liability in bankruptcy is limited to the amount they invested in the business.

Importance of incorporating a PLC

The procedure of legally creating a corporation or other corporate body is called incorporating a private limited company. Limited liability, transferable shares, permanent succession, separate property, the power to sue, flexibility, and autonomy are benefits of incorporation for a firm.

Reasons to Incorporate a Private Limited Company

1) Limited liability protection 

• Explanation of limited liability: Each shareholder or member’s responsibility in a PLC is constrained. The shareholders are therefore required to sell their own assets to make up for any loss, regardless of the reasons.
• Shielding personal assets: A PLC’s shareholders are protected from having their personal assets seized to settle the company’s obligations because they are only responsible for the amount they invested in the company.
• Minimizing financial risk: The business owner might avoid being held personally accountable for the debts and other liabilities of the company by limiting their liability by switching to a PLC.

2) Separate legal entity 

Legal distinctiveness of a PLC: A PLC is a privately held company that individual investors own. In this situation, the shareholders’ responsibility is restricted to the number of shares they own under the limited partnership liability arrangement.

Ownership and management structure: A PLC is an organization that is owned exclusively by individual shareholders. In this situation, there is a limited partnership system of responsibility, and each shareholder’s obligation is restricted to the amount of shares they own. The performance and sustainability of a PLC are significantly impacted by its organizational structure.

The organizational structure of a PLC

Here is a list of a PLC’s organizational structure in hierarchical order:

• The managing director
• Chief executive officer
• Chief operating officer
• Operations Manager
• Chief financial officer
• Finance manager
• Chief technology officer
• Technology manager
• Chief legal officer
• Legal managers
• Chief marketing officer
• Marketing managers

Role of Subordinates in the company hierarchy

Employees who report to bosses are referred to as subordinates. They assist the management in carrying out and putting into practice various strategies and policies.

They also carry out the bosses’ established work strategies.

Continuity of existence

The continuity-of-life theory, sometimes known as the continuity-of-existence doctrine, is the idea that an entity’s existence, particularly that of a corporation, is not terminated by its owner’s withdrawal, incapacity, bankruptcy, or death.

3) Tax advantages

Salary to the founders or directors

1. Directors of a corporation take a predetermined percentage of the profits as their own.
2. Instead of paying a dividend, the gains can be transferred to the director as a salary to save on taxes.

Sitting fees to directors

Companies may pay directors sitting fees for attending committee or board meetings.

Pay advance tax

1. Advance tax, sometimes called the pay-as-you-earn system, is a tax that you predict your turnover and pay in advance.
2. By paying advance tax on time, you can avoid paying late fees on taxes paid at the end of the fiscal year.

Rent expenses

You can deduct this expense and receive a tax break if one of your company’s directors or a family member is named as the registered office.

Capitalizing on capital assets and depreciation

You must profit from an asset if it helps your firm and generates income.

Salary to a family member

1. Family members offer free advice and assistance to enterprises
2. You can enter their salary in the accounting books. Bring your earnings portion home with dual tax incentives to reduce your taxes.

Entertainment expenses

The company hosts a dinner or an internal party for family members or partners following any significant successes or roughly every three months.

Dividend distribution

Dividends might be interim or final. The interim dividend is paid during the fiscal year, while the final dividend is given at the end of the year. Declaring and distributing dividends to shareholders of Private Limited businesses is governed by the Businesses Act, 2013, passed in 2013.

4) Access to funding 

Raising capital through equity 

Generally speaking, the process of raising private equity money can be divided into three stages:

1. Proffering (before approaching investors)
2. Offering (liaising with investors)
3. Closing (securing partnership with investors)

Through loans and debentures

Directors and their family members may offer a corporation an interest-free or interest-bearing unsecured loan. Additionally typical is the practice of bank borrowing. On the other hand, these funds are raised over a predetermined long-term period at a fixed interest rate. The board must adopt a resolution before borrowing funds from any bank.

Through angel investors

High-net-worth individuals who lend money to startups in exchange for stock in the company are known as angel investors. Since most angel investors are private equity specialists, a company looking for funding must have current financial documents, a business plan, and a workable exit strategy. Angel investors often only work with businesses that have a strong likelihood of experiencing exponential growth and that want to go public shortly.

Enhanced business credibility

According to research on credibility, people make three unconscious judgments about a person’s trustworthiness: ability, character, and care. All three of these qualities are found in the top PLCs.

5) Perpetual succession 

Independent existence from founders 

This phrase refers to the fact that a business usually “lives” independently of its founder(s), stockholders, and staff. In other words, the business entity will continue to exist even if some employees leave, retire, or even pass away.

6) Professional image and trustworthiness 

Building customer confidence 

Strategies to retain customers’ trust

• Be upfront and truthful with everything (e.g., pricing, product revisions, etc.).
• Highlight the basic principles of your company.
• Keep staff members informed.
• Attend to the concerns and inquiries of your clients.
• Admit your errors and grow from them.
• Make communication a priority.
• Encourage everyone to provide feedback.

Attracting investors and partners 

• Outline a detailed plan for finance.
• Speak to the proper investors.
• Make use of your network.
• Present investment packages with fast payouts.
• Emphasize the organization’s main goal.

Competing with established businesses

• Create a strong online identity for your small business.
• Examine current marketing trends.
• Establish a solid business reputation.
• Provide first-rate customer service.
• Improve products based on client feedback.
• Identify and hone your target audience segments.

7) Compliance requirements 

Meeting legal obligations 

A statutory audit is required to ensure the financial condition’s representation is accurate. Examining data, including bank balances, bookkeeping records, and financial transactions, is a part of the statutory audit. A PLC is required to engage statutory auditors to identify annual account errors.

• PLC compliance is required.
• A board of directors meeting.
• The issuance of stock certificates.
• The hiring of auditors.
• Minutes of the board and general meetings’ proceedings.
• Directors are disclosing their financial interests.

Enhanced corporate governance 

Although there is no proven link between corporate governance and a company’s market worth, it does increase shareholder happiness. Because maximizing the interests of all stakeholders is the ultimate goal of effective corporate governance in India, it is crucial to protect a company’s valuation.

Financial transparency

A PLC is not compelled to reveal financial information to the public, as the name suggests. Family-run enterprises, sole proprietorships, and most small and medium-sized firms are examples of privately owned businesses.

8) Employee benefits and growth 

Offering employee stock options 

With an employee stock ownership plan (ESOPs), employees can purchase business shares at a set price. It is NOT a must. As a result, the employee need not excise the right to purchase company shares if the value of the shares is less than the option excise price.

ESOPs may be issued by a PLC, but if an employee also serves as a director, a 10% restriction must apply.

Attracting and retaining talent 

Being able to hire and keep employees while keeping turnover manageable is the capacity to attract staff. A charismatic boss is adept at finding and appointing talented workers. They can also retain these workers for a long time. An effective leader typically has little staff turnover.

Conclusion

You can contact Chennai-based Kanakkupillai.com, the Govche India Pvt. Ltd. web portal, if you want to incorporate your PLC for the straightforward reasons we’ve covered in this blog post. With Kanakkupillai, incorporating a PLC is simple and may be done online in three quick steps:

• They can help you with the Ministry of Corporate Affairs’ requirement that all businesses have registered directors.
• Select a name for your business. (Use their database to look up a company name, or contact them for assistance.)
• The experts at Kanakkupillai.com prepare and submit the paperwork (Memorandum of Association and Articles of Association) necessary to incorporate your business.

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