Starting a business is an exciting endeavor that can be filled with challenges and rewards. As a founder, one of the most important decisions you'll make is choosing the right business structure for your startup. There are several options available, but one that is becoming increasingly popular among entrepreneurs is the private limited company structure. Private limited companies are a type of corporation that have a separate legal identity from their owners, which means that they can own assets, enter into contracts, and take legal action in their own name.

Choosing the right business structure

When it comes to starting a business, choosing the right legal structure is crucial. A private limited company is one option that is often favored by entrepreneurs. This business structure has several advantages that make it an ideal fit for startups looking to establish a strong foundation for growth and success. In this article, we'll explore the benefits and advantages of a private limited company structure, and why it's a smart choice for startups that want to position themselves for long-term success.

Why is a Private Limited Company the ideal business structure for startups? 

There are several key benefits and advantages to choosing a private limited company as your legal structure. Here are some of the major ones: 

Low cost of incorporation

You can start a private limited company with a incorporation fee of just Rs. 1,000 (One Thousand Rupees) in Nepal. That makes it ideal for a startup which cannot afford or is unwilling to spend high business registration fees. 

Low capital requirement

If you are willing to start a business with a very low capital then registering your business as a private limited company can be the best option for you. The minimum acceptable investment in a private limited company is Rs, 100,000. Therefore, you can really start small and slowly scale up. 

Easier Access to Funding

Private limited companies have an advantage in raising funds from external investors as they can issue shares to new investors in exchange for capital infusion. This can be useful in securing funding for business expansion or new projects. A private limited company can easily increase its share capital and accommodate up to 101 shareholders. While, it can be started with just 1 person as a shareholder. And hence, the flexibility of increasing capital as well as adding up to 101 shareholders really offers a lot of funding options for an entrepreneur. 

Separate legal entity

There is a clear distinction between the owner as a person and the company. Similar to how a person has their rights, a company also has its rights to acquire, own, use, sell and otherwise manage the property in their own name. They can sue and be sued and they can agree to and enforce an agreement being a legal entity. 

Limited liability

One of the biggest advantages of a private limited company is that it offers limited liability protection to its owners. This means that if the company faces legal issues or debt, the personal assets of the owners are protected. This can be a crucial advantage for startups, which often face a high degree of uncertainty and risk.

When you run your business as a sole proprietorship, you risk paying the company's debts out of your pocket and personal assets, if the business ever fails. In a private limited company, the company is liable for the debt and not the shareholders. That means, if the business ever fails, the lenders or the creditors can only recover their due from the company’s assets. It cannot go after the personal property of the shareholders. 

Easy compliance and governance

The registration process of a private limited company is easy and so is its compliance as compared to other forms of business entities. The compliance process and the documentation related to such compliance is relatively straightforward. 

And since a private limited company is owned and directly managed by its shareholders, the governance of the company is also simple and easy. In the case of a single shareholder private limited company, many company decisions can be made through a written resolution. Such provisions make This provides private limited companies with a simple and flexible way to run a business.

Easy transfer of shares and ownership of the company

The shares of the company can be easily sold or be transferred partially or completely to another entity if the buyer is available while the business becomes a growing concern. 

Easy to liquidate and close

When you want to cancel the registration of a company or liquidate a company, private limited companies provide the finest form of an exit route. The registration of a private limited company can be canceled in a few simple steps.  

In the case of startups, if the company is registered but it didn’t go as planned and further compliance is not made, one can easily cancel the registration of such a company through the OCR.

Can be easily converted into a public company, if required

If a business registered as a private limited company wants to operate further as a public company, it can do so by passing a special resolution and submitting an application to the OCR. 

Tax Benefits 

One of the major advantages of registering a private limited company is the tax benefits it offers. The corporate tax rate for a private limited company is lower than the individual tax rate for a sole proprietorship. Also, a private limited company is eligible for certain tax deductions and exemptions which are not available to other business structures.

Credibility 

A private limited company is perceived as a more credible and trustworthy entity in the eyes of customers, suppliers, investors and other stakeholders. It gives your startup a professional image, which can be important in building and growing your business.

Protection of Intellectual Property

A private limited company can protect its intellectual property through various legal mechanisms, such as patents, trademarks, and copyrights. This can help your startup to secure a competitive advantage and prevent others from copying your ideas.

Continuity of Business

A private limited company has a perpetual existence, meaning that it can continue to operate even if the shareholders change. This provides greater stability and continuity to your business.

Employee Benefits

A private limited company can offer various employee benefits, such as health insurance, retirement benefits, and stock options. This can help to attract and retain talented employees, which is crucial for the growth of any startup.

Separation of Management and Ownership 

In a private limited company, the owners and management can be different individuals, which can help to bring in professional expertise and skills for running the business.

Makes sense? 

As we've seen, a private limited company structure offers many benefits and advantages that make it an ideal fit for startups. From protecting personal assets to attracting investors and employees, a private limited company provides a strong foundation for growth and success. By choosing this business structure, founders can focus on building their business, knowing that they have a legal structure in place that can adapt to changing circumstances and support their goals. Of course, every startup is different, and there may be other factors to consider when choosing a legal structure. However, for many entrepreneurs, a private limited company is the smart choice for establishing a strong, stable, and scalable business. And here is how you can register a private limited company in Nepal, all by yourself. 
Still not sure about what business structure is best for you? Book a free consultation call and we will help you structure your business.