Reasons why Private Limited Company or LLP is preferred

Starting a Business is not an easy task. New entrepreneurs get face problems while starting their business is whether to form a proprietorship or a Company. According to the corporate law there many forms firms and company need to be incorporated. Entrepreneurs should be having good knowledge about the compliance.

Many start-ups in India fail due to wrong choice of Company incorporation.

Limited Liability

In a private limited company and Limited Liability Company, Liabilities are limited and there distinction between company and person. Private limited Company is separate legal entity which must have the two people starting a business. Person personal assets will not be disposed in case private limited company registration. One Person Company is another form of company having advantage of limited liability and it is a separate legal entity which gives it an ensured identity of credibility of the company, as a separate entity.

Limited Capital

It is easy to raise fund in private limited company and Limited liability Partnership. Since, partners’ capital or equity capital can always be raised easily. Whereas,  in proprietorship firm there is no option but to rely on the proprietor’s funds to raise capital. Banks prefer company for funding after a thorough due-diligence as there is no distinction between the assets of the business and the assets of the proprietor. There are certain features of unlimited liability in proprietorship. Unlimited liability is considered as the risky affair to invest. Fund raisers like Angel investors, Private Equity firms and Venture Capitalists mainly prefer corporate form of business having structural format of Business. There is sense reluctance with some Banks and Financial Institutions.

Limited Growth Prospects

Proprietorship does not have constraints of capital and human resource. Due to limited capital makes it difficult to run the business as it grows. Absence of talented representatives and appropriate working space because of restricted capital makes it hard to maintain the business as it develops. The weight of business advancement, work conveyance and in addition back office lie on the Sole Proprietor letting him well enough alone for limit numerous a times. Not at all like LLP and Private Companies, a Proprietorship neglects to get the help of co-accomplices or chiefs maintaining the business at the same time. In this manner, because of absence of pooled in aptitudes and assets, a proprietorship frequently falls behind in making an effective plan of action. Consequently, new businesses typically clandestine into LLP or Private Company not long after subsequent to beginning their business as a proprietorship, to conquer obstructions of collaboration and assets.

Business Continuity

A proprietorship firm is, for all viable purposes, absolutely reliant on the proprietor. In the event that for any reason the proprietor is inaccessible, the business endures as it were. There is no substitute of the proprietor. In addition, the legitimate substance of the proprietorship firm reaches an end with the demise or weakening of the proprietor. The goodwill earned by the firm is related with its proprietor and holds no esteem later on. In any case, in a corporate type of business, the goodwill earned is that of the organization and holds esteem regardless of the possibility that the organization is assumed control or there is an adjustment in the promoters. Along these lines, the business coherence or span of a sole proprietorship firm is constrained not at all like a LLP, Private Limited Company or One Person Company.

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