Any person (man or woman) who pursues an activity for financial gain on a continual basis must register a business in India. The majority of the entrepreneurs start their journey by getting their business registered as a sole proprietorship. A sole proprietorship is a proprietorship where the business owner has complete control over his business, and he will be the only one who stands personally accountable and liable for all the legal matters arising from the business operations and activities.
One common misconception among most people is that sole proprietorship registers a person alone. A company can also be registered as a sole proprietorship as long as there is one company. However, the partnership model is not eligible to register a sole proprietorship. For beginners, the sole proprietorship is a good place to start initially but when the business grows to be a sole proprietorship, you need to set up a private limited company.
However, the question arises how you can say you have surpassed a sole proprietorship?
Market Opportunities: when there is increased demand and it is time for you to expand your business so you can bring your services and products to more and more customers, you may need to take out a loan. When you take the loan out as a sole proprietor, this implies that the bank can come after your assets that are personal in nature, should you fail to meet your bank payment obligations.
Investors interested in your business
This is a sign that your business is growing now. When there is only one owner your business can grow up to a certain extent but when there is more money on the table and more heads in the board room, your business can reach new heights.
Retirement is in the perspective
When the sole proprietors are about to retire they can gift any part of the business to someone else. Before running your business becomes a problem or before your wealth becomes a liability when you are planning to retire, consider restructuring your business.
Why a private limited company and how can a professional services provider like Haiku Solution in India can help you set it up?
A private limited company is the most popular choice of business owners most of the time because of the flexibility that it offers. It is limited by the shares with a legal entity of its own. This implies that directors of the company and the business owners of a private limited company will not be held personally liable before the law. But a private limited company is a taxable body, which supplies protection for stakeholders and shareholders and they do not become liable for the company’s obligations, debts, or financial losses if the amount is beyond the reach of the shareholder’s share capital.
What are the advantages of a private limited company?
- - There is a strong public perception about the private limited – It is because the private limited company is directed and governed by regulations and rules and is required for reporting on an annual basis which makes the setup more reliable and stable.
- - There is better credibility and ownership can be transferred easily – if one or more of the shareholders dies, the ownership of the company can be transferred or sold easily without many difficulties or complex formalities.
- - There is a tax advantage – Corporate taxes in India are lower than individual taxes
- - Separate legal entity – The company is different from its directors and shareholders. It has a legal entity of its own that can be sued as well.