How a person generates good profits by Private limited registration instead of Proprietorship registration!!
‘Sole’ means single and ‘proprietorship’ means ownership. Proprietorship is a business endeavor that is claimed and constrained by just a single individual who has the whole authority and duty concerning the business. The practical implication of such a type of organization is that an owner alone gets the entire profit but he is also personally liable, meaning if the business gets sued, the owner gets sued and so the owner could lose everything and the business owner also, as a proprietorship, the business taxation falls under owner’s personal income tax. This form of business is ideally suited to businesses where the nature of the business is simple and the product’s market is small, businesses that have small capital requirements and low levels of risk. In the case of a proprietorship firm, the death of the owner causes the unit to close. Even if the legal heirs continue the business of the deceased proprietor, it becomes a fresh proprietorship. There is no concept of separate legal entities in this type of business.
On the other hand, a Private Limited Company, creates a separate entity for the business meaning that the business purchases its own equipment, can enter into its own contracts, and if it gets sued, then the owner is not touched on the personal level the business may go bankrupt without the person having to worry about losing any personal possessions such as a house. Also, a Private limited company gets taxed on its own under corporate taxes, which tend to be a lot more favorable most of the time.
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1) A Private limited company creates a separate legal entity as contrasted with a Proprietorship. Proprietorship is in existence till the solvency or till the owner is alive. But a private limited company follows the concept of a separate legal entity; it is distinct from its members and directors. The members and shareholders of a company have no liability to the creditors of a company for such debts unlike in Proprietorship.
2) Steady Existence of Private limited company is an important feature as a private limited company never loses its identity until it is legally dissolved. A company is ineffective from death or resignation of any director and member. Unlike the Proprietorship firm, as the proprietor is the owner of the firm and his death results the cease of the firm.
3) Sole proprietors have unlimited liability. This means that in a situation where a sole proprietor fails to meet his debts then the personal properties of the proprietor could also be inclined to satisfy the debts. Whereas a Private limited company allows for the limitation of liability. The liability of the members of a company is limited only to the stretch of the face value of shares subscribed by them. Therefore, where a company is limited by shares, the liability of the members at the time of winding-up is limited to the amount unpaid on their shares.
4) Expansion of the business beyond a certain point becomes very tough since the proprietor cannot be an expert in every area of business management. The employees whose long term aim is often sharing the benefits of ownership are difficult to attract, as the owner could not share the ownership in the Proprietorship. Unlike in private limited company, the shareholders are the owners of the company and gets dividend as well as ownership in the company. Shares of a company limited by shares are also transferable. The transfer is easy as compared to the transfer of an interest in Proprietorship.
5) Difficulties are experienced by a single person in Proprietorship in the raising of capital by. Lack of credibility is that hampers the flow of capital and thus expansion of the size of the business notwithstanding the extent of the success of the business or its product also effects.
6) A company enjoys better approaches for the borrowing of funds. It can issue different securities like debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to supply large financial assistance to a company rather than proprietary concerns.
7) A distinguishing benefit in starting a Private limited company is that it can help to attract the investors who were not interested to invest in a Proprietorship owing to the risks imposed by unlimited liability.
8) Private limited companies and limited companies are the only types of organizations that allow for Foreign Direct Investment of up to 100% through the automatic route, which means, any foreign entity or foreign person can invest in a company without any prior approval of the government. The proprietorship firm requires prior approval from the Government to accept investments from foreign entities. Therefore, if the business has ambitions for going international, then it is best to start a private limited company.
As the blog expressed the views on earning profits in higher amounts from the entity registration named as Private limited as compared to proprietorship. Proprietorship provides only the business recognition and there is no help from the financial institution just because there is no authority allotted who governs the proprietorship. Here this benefit can be earned by private limited’s owners. They have full access to the market with proper market legislation which is governed by a separate authority.
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