Among various types of businesses in India, Private Limited Company registration is favoured by businessmen to start a business by enjoying strong control over its operations. Private Limited companies are preferred by the promoters when medium scale operations are to be covered under proposed Business without any interference of the outsider’s i.e. public at large.
Private Limited companies are closely held companies. To invest into these companies, one needs to get in touch with the Directors, Promoters or the Shareholders of the Company as the shares of these companies are non-transferable unlike the shares of Public Limited Company. They need to be transferred by the existing shareholders and are not listed on a stock exchange.
A third party can invest in a Private Limited Company by way of
- Equity shares: One needs to get in touch with the Directors, Promoters or the Shareholders of the Company as the shares of Private Limited Companies are non-transferable.
- Debentures: Investment in debentures is the safest option, there are two kinds of debentures, convertible and non-convertible debentures.
- Investment in the form of loans and advances: Private Limited Companies can only raise capital through private arrangements from its members, directors or their relatives etc.
Private companies are prohibited from inviting the public to subscribe for shares or debentures of the company and they cannot accept deposits from persons other than its members, directors or their relatives. So these Companies can only raise capital through private arrangements from its members, directors or their relatives, friends etc.
Getting an investor in the Company is an essential step for all businesses, Companies require external fund to cater to their growing requirements. However, an informed investor shall investigate into the working of the Company before lending the money. Investing in a Private Limited Company becomes advantageous due to various benefits offered by the said structure as well as the nature of the business.
Read more blogs: Private Limited Company
The investor needs to consider the following points for making an informed decision regarding Investment in a Company:
CONTROL: Control over the operations of the Company depends on the Shareholding ratio. The Shareholders having a stake in the Company can help direct the Company in the right direction. Shareholding enables an investor to make decisions for the company by availing the voting rights for the business to be transacted and conducted at meetings of members. Also where the investors are willing to take control over day-to-day working of the company, they have on option to appoint a representative in the Board called Nominee Director.
TAX IMPLICATION: Corporate tax is applicable on Private Limited Companies. The dividend on shares, if any, is given by the company to the shareholders is tax free in the hands of the shareholders.
MANAGEMENT: The investor has the option to take part in the day to day operations of the Company. If the investors are not willing to involve in the working of the company and have invested for profit only. It is not the obligation of the shareholders to engage in the day to day business activities and the same can be taken care by the Board of Directors of the company.
LIMITED LIABILITY: The investors are accountable for the amount held by them in the form of shares. This Limited Liability characteristic helps safeguard investors personal assets from loss made in the company. The risk of loss or failure of business is linked to the type of industry in which the company operates. Hence it safeguard the investors from extreme risk.
INVESTMENT: As per the current trend, a start-up or a newly registered private limited company may run into losses at the initial stage of the operations. But the company may yield higher profit in long term. Investment here should be made after considering the Business Plan of the company in order to keep the risk at marginal level.
Conclusion: Investment decision in a Private Limited Company is ultimately based on the willingness of the investor. One needs to adopt a rational procedure before indulging in any project.
Read more blogs: Seven Steps for Private Limited Company Registration in Delhi
Frequently asked questions:
Who can invest in a private limited company?
Anyone can invest in a private limited company, but as Private Limited companies are closely held companies. To invest into these companies, one needs to get in touch with the Directors, Promoters or the Shareholders of the Company
Can a private limited company invest in another private limited company?
Yes, Private Limited Company invest in another private limited company
Can you invest in a private company?
Yes, one can invest in a private limited company, the process is covered in the above-mentioned blog.
How can a private limited company raise funds?
A private limited company raise funds through
- Equity shares
- Preference shares
- Debentures
- Investment in the form of loans and advances
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