In any business venture, investors are considering many things to ensure that they become profitable in the long-run. After all, the results of their hard work are what they have in mind in the first place.
You might consider starting a private limited company if you like to have limited liabilities and small operations.
But, what do these mean? Limited liability means that the liabilities of the company members are only exclusive to their ownership. Thus, the business cannot use their personal assets to pay off debts. The other one simply stresses that this type of company is privately held for small businesses, noting that it only takes two people to register such a venture.
Before getting on board, you might consider the following first.
Pros Of Private Limited Company
Apart from the limited liability aspect, here are the other benefits of starting a private limited company:
- The probability of a hostile takeover of the company is very low because selling or transferring shares needs approval from the shareholders first. The shareholders are not also allowed to sell their shares to third parties.
- A private limited company continues to operate even after the death or resignation of the owner. It is a separate legal identity which means it can own assets and enter into contracts.
- A private limited company can earmark the surplus income to finance potential costs. This not only decreases your personal income tax but also strengthens your business capital.
- With more owners backing a company—compared to sole proprietorship—incorporated businesses have better opportunities of securing bank loans.
- Given that a limited company has a professional status, building credibility and trust will be easier.
Cons Of Private Limited Company
- The following should also weigh in on your decision when starting a private limited company:
- While it is an advantage to restrict transferring shares to outside buyers, it can also mean that shareholders have limited means of selling their ownership.
- A private limited company limits the number of members to 50 only.
- Company records should be well kept and available for public review all the time.
- The requirements for preparing your accounting record may be more demanding. You also need to hire an accountant to deal with your tax matters.
- Withdrawing money from the company follows a strict procedure.
If you believe that the pros outweigh the cons, you may now go ahead and build that private limited company. Remember that mandates concerning a private limited company are there for protection of the business and its owners. It is up to you if you see it as an advantage or disadvantage.