Caselet: Mr. RajKumar wishes to convert his business entity from Sole proprietorship to a Private limited company. I have informed him the advantages and disadvantages of a private limited company. Can you also do the same? Inspite of knowing the disadvantages, He still insist for help and guidance in forming a private limited. | |
Firstly Mr. Rajkumar must understand that a limited company is a type of company which when set-up allows an entrepreneur to keep their own assets and finances separate from the business itself. This means that people who have invested in the business (the shareholders) are only responsible for any company debts up-to the amount that they have invested and no more. It is therefore a good way for a business to get investment without risk to a personal wealth. Since, Mr Raj wishes to shift from a sole proprietorship firm to a private one, an agreement has to be executed between the sole proprietor and the private limited company (once it is incorporated) for the sale of the business. In this process, for his guidance, I would list down below mentioned points regarding the pros and cons of shifting to a private limited firm:- * For a start, there is unlimited liability of business debts in a Sole Proprietorship, and which extends to even the private assets of the individual. In contrast, in a private limited company, the liability is limited to the extent of shares held but not paid. * In terms of the staff, just one person that’s the entrepreneur is sufficient to qualify for a valid Sole Proprietorship, while a minimum of two and maximum of 50 people are required for registration as a private listed company. * There is no separate legal entity for the venture, with the sole entrepreneur listed under Sole Proprietorship. In contrast, a private listed company has a corporate identity distinct from its individual members. * A Sole Proprietorship requires no registration before its...