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Top 10 Reasons to Invest in a Private Limited Company

Know About 10 Reasons to Invest in a Private Limited Company

What is a private limited company?

In a private Limited company there are various benefits over other types of business entities. Private Limited companies are not only easy but also affordable to establish. It provides credibility and reliability to the business. If you want to establish a company then you need to carefully choose the ideal company category according to your business. In India Private limited company is the most preferred business structure as it helps in rapid growth of the business. By registering your company as a private limited you can safeguard your personal assets. 

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What are the 10 reasons to invest in private limited company?

Here are the top 10 reasons to invest in private limited company.

1. Limited Liability

Unlike sole proprietorships, and partnerships, private limited companies have separate legal entities from their shareholders. The company income and the liability are equally distributed among all the shareholders according to a predetermined ratio. Limited liability for shareholders attracts the investor but also a characteristic that offers them immunity against financial crises in the company.  Hence, this is one of the best benefits of Private Limited Company Registration in India.

2. Attract the Investors for investments

Private Limited Company is the ideal category to attract the investor as it offers high potential for growth and makes historical records of success in the Indian market. It’s a popular category in the domestic as well as in the Indian market. It is more convincing to entrepreneurs looking forward to making it big in their respective industries. You can see the big examples of this like Parle, Google, American Express, Cocacola, and Jaguar are all Private Limited Companies. That’s why in India a private limited company is considered as the ideal business structure for startups.

3. Preferred by banks and Financial Institutions

To establish a private limited company you need to register with the Registrar of Companies under the Ministry of Corporate Affairs. The registration process comes under the Companies Act 2013 and the Company Incorporation Rules 2014 along with other provision acts such as Names and Emblems Ac, Trademark Act, EPF Act, ESIC Act, Shops and Establishment Act, Income Tax Act etc. Registering helps to maintain the public accessible databases that contain necessary details about the companies. This increases the credibility of private limited companies as all the information and database is verified by the government.

4. Perpetual Existence

A private limited company has a separate legal entity so the life of a company does not depend on the life of its owners. A private limited company shall continue to work even after the death, retirement, resignation and removal of the company shareholder. This makes the private limited company different from other business entities like proprietorships or partnerships. In a proprietor or partner business the death or the departure of the member means the company needs to be closed immediately.  After the death of a partner in the partnership company the deed of a firm will automatically terminate.


5. Low Income Tax

The most important benefits of a private limited company is low cast burden of legal and tax compliances. As per the Section 80 IAC of the Income Tax Act provides three consecutive financial years as tax holidays for shareholders of startups registered either as a private limited company or an LLP Registration.


6. Easy to incorporate a company

You can easily do completely online registration of a private limited company through the government MCA website. You can register by filling the  SPICe+  and SPICe+ / INC 29 application. You need to apply for the DIN, PAN, TAN, registrations under GST, PT, EPF, ESIC, and Shops & Establishment Act, and opening a latest  bank account for the company. Besides, PART A of the form needs to be submitted individually or with the application which contains the RUN form to reserve your company name. Private limited companies in India have certainly reduced the paperwork, time and cost of starting it. An easy, simple, and 100% online process of incorporation is one of the major benefits of private limited company.

7. Minimum and Maximum limit of shareholders

For starting a private limited company in India you need at least two shareholders to get registered and start operations of the company. This gives the benefits especially during the initial years of small entities as they face problems to attract  investors in the market. You can add a maximum number of 200 shareholders.

8. No minimum and maximum capital requirement

The minimum capital requirement for private limited companies has changed by the Indian government from 1 lakhs to nil. You can start a business by registering as a private limited company with no authorised capital. 

9. No mandatory requirement of an audit committee

In a private company there is no need for an audit committee as they are neither listed nor are their shares publicly held. Under the companies act Section 177 is mandatory for the Board of Directors to set up an audit committee to improve the decision quality of the BoD regarding the financial management of the company. 

10. Power to sue

A private limited company is a legal incorporated company which can sue third parties in a court of law to resolve disputes over a slew of matters.

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To establish a  Private limited company in India you need a minimum number of  two people and can add a maximum of 200 people. If your entity faces any financial loss, you need to sell the company asset for the payment. Your personal asset or any individual resources are safe. A private limited company exists for a lifetime.

Private Limited companies have many advantages for people who want to run their own businesses rather than becoming sole traders or forming a partnership. One of the most important benefits is limited liability that means company registration shareholders or owners are limited and personal assets are protected.

These are the private limited popular examples such as Flipkart, Ola, Snapdeal, Carat Lane, and Zoom Car are all private entities, while those that run Zomato, MakeMyTrip, and Infibeam.

To start a private company, the minimum age to register a company is 18 years in India. This comes under the Companies Act, 2013, which sets the minimum age requirement for companies as well as individual directors.

Following are the benefits of a private Limited company in India:

  • Limited Liability Partnership
  • Attract the Investors for investments
  • Preferred by banks and Financial Institutions
  • Perpetual Existence
  • Low Income Tax
  • Easy to incorporate a company
  • No minimum and maximum capital requirement
  • No mandatory requirement of an audit committee
  • Power to sue

Updated on: 27 Mar, 2024 | 7 min read

Vanshika Gupta