Advantages of Company |
| The Advantages of Having a Company Form of Business Organization |
A Private/Public
limited company has many advantages over proprietorships
and partnerships, as elaborated below. |
| 1. Limited Liability |
First and foremost benefit of doing business via company is the limited liability conferred upon the company's directors and shareholders. As a sole trader or partnership business, personal assets of the proprietor or partners can be at risk in the event of a failure of the business, but this is not the case for a Company. The unfortunate events like business failures are not always under an entrepreneur’s control; hence it is pivotal to secure the personal assets of the businessman in the event of crises. Unlike proprietorship and partnership, if a Company becomes insolvent and is wound up, only the assets of the company are used to clear its debts. The Directors or Shareholders of the company have no personal liabilities and are not made bankrupt and are free to carry on business. |
| 2. Legal Entity/Status or Recognition |
A private
limited company is a legal entity, a juristic person established
under the Act. It has its existence separate from its directors
and members. Private limited company status enables you to be taken more seriously than a proprietorship/partnership status does. Operating as a private limited company often gives suppliers and customers a sense of confidence in a business. Larger organisations in particular will prefer in dealing with private limited companies than proprietorship/partnership organisations. Easy to attract quality workforce and achieve strategic motivation of employees by using flexible and wide range of management designations. |
| 3. Perpetual Succession |
Another
important characteristic of a private limited company is
perpetual succession. It is a popular saying that the directors
may come and go the members may come and go, but the existence
of a company remains forever. A company once incorporated
remains alive unless and until it is wound up by complying
with the provisions of Law. The death, disability or retirement
of any of its members does not affect the continuity of
the company, irrespective of change in its membership. There is no obligation for a Private limited company to commence business/trading within any set time period after its incorporation. |
| 4. Project Cost and Risk Factors |
For entrepreneurs
going for hi-tech or high capital outlay projects it is
always advantageous to go in for a company form of organisation.
Where the financial stake involved is high, it is found
that banks and financial institutions while sanctioning
financial assistance, insist on having a private limited
company. |
| 5. Easy Transferability |
Where
it is proposed to sell the business as a going concern,
all that is required is to transfer the entire shareholding
to the purchaser and thus facilitate easy change in management
and ownership. This will save time and money of the Promoters.
Huge amount of stamp duty is saved. |
6. Dual
Relationship |
In the
company form of organisation it is possible for a company
to make a valid effective contract with any of its shareholders/directors.
It is also possible for a person to be in control of a company
and at the same time be in its employment. Thus, a person
can at the same time be a shareholder, director, creditor
and employee of the company. For eg: A) As a director he can receive remuneration. B) As a shareholder he can receive dividend. C) As a lessor he can receive lease rent. D) As a creditor he can lend money and earn interest. E) As a supplier he can supply goods from his/his family business. |
7. Borrowing
Capacity |
A company
enjoys better avenues for borrowing of funds. It can issue
debentures, secured as well as unsecured, accept deposits
from the public, etc. Even banking and financial institutions
prefer to render large financial assistance to the company
rather than partnership firms or proprietary concerns. |
8. Taxation |
Sole
traders and partnerships pay income tax. Companies pay Corporation
tax on their taxable profits. There is a wider range of
allowances and tax deductible costs that can be offset against
a company's profits. |
9. Raising
Money from Public |
Public
Limited Companies can raise large amount of capital from
the general public by issue of shares and public deposits. Private Limited Companies can raise capital only by private placement of shares and deposits. |
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