2) Advantages operating business in the form of Private Company
a) Large Borrowing Capacity
b) Protect Personal Assets
c) Assign Shares To Employees
d) Loan at lower rate
e) Credibility of Business
If we are thinking of starting a business, then it is better if you register it as a private limited company. Though people generally try to keep away from it because of a much complex registration process, you must understand that being registered as a private company gives you benefits which you will never get in other forms of business ownership, whether it be as a sole proprietary concern or as a partnership firm. Below, we look at some of the advantages:
Advantages operating business in the form of Private Company
Below mentioned are some of the advantages which an person can have if operate their business in the form of Private Limited Company :
Large Borrowing Capacity
When we register our business as a private limited company, your ability to raise funds will expand. In addition to adding more capital via the equity shares, our business will also be able to raise funds by issuing debt instruments like debentures, bonds, preference shares etc. In addition, banks and other large lending institutions usually have a preference to fund companies rather than sole proprietors or partnerships. We can raise these funds at lower interest rates.
Protect Personal Assets
If we operate your business as a sole owner or through a partnership, and if a situation occurs where the business suffers a huge loss and you have to shut it down, then our personal assets will also be at risk. When the business is unable to repay all the debt it has taken, the creditors will have the full legal right to recoup the debt from your assets, including your very home. However, registering the business as a private limited company helps you avoid such issues. In case of a wind up, only the assets of the business can be taken away by the creditors. They cannot touch your personal assets.
Assign Shares To Employees
When we run a business, one of the main drivers for its success will be the enthusiasm and the performance of its employees. With a sole proprietorship or a partnership, we can only reward your employees by paying bonuses and such limited things. In contrast, when we are a private limited company, we can issue your employees with stock options which makes them own a part of the company. And as the value of the company rises, the stock values held by the employees also increase. As such, they are more likely to be committed to the success of the business, since their monetary benefit is tied directly to the progress of the company.
Loan at lower rate
In case of a private company we can borrow the money at very low interest as compared to the loan given to Sole proprietary concern or partnership firm. It will help the company in reducing their cost of Capital and increases the value of the company. So, always prefer to go for a private company rather than Sole proprietary concern or partnership firm.
Credibility of Business
Business increases their credibility if they operate as a private company instead of other forms of business. Sole proprietary concerns or partnership firms do not have larger recognition as compared to Private companies.
So, consider registering your business as a private limited company is the best option for current entrepreneurs.