Reasons Why Private Limited Companies are Preferred Over Sole Proprietorship!

The sole proprietorship is the most common form of business that can be seen in the world today. In fact. The sole proprietorship firms are growing exponentially all over the globe, yet, people prefer to invest their money in Limited Companies. Well, here is a list of reasons why.

Unlimited Liability: unlike, private limited company, in a sole proprietorship firm, business is no different from its owner. The firm is not considered to be a separate legal entity in the eyes of law as it does not distinguish it from its proprietor which means; the asset and liability of the business and the proprietor are considered to be one and the same thing. To simplify this, whenever there is an outstanding liability in the name of the firm, the same will be borne by the proprietor from his personal assets. Therefore, the liability is never non-personal is such a case.

On the other hand, a separate legal entity is an artificial person in the eyes of law which means it is different from its owners and therefore, their personal assets are not liable to waive off the liabilities of the business.

Raising Funds is Not That Easy: Venture capitalists and investors do not prefer to invest in proprietorship firms due to the fear of loss of their money. They usually love to invest their money in a limited firm which has a structured set of working and fewer chances of losing the invested money. In fact, financial institutions and banks are also hesitant in lending money to sole proprietorship firms over limited companies as a lot of research needs to be done to find out the credibility of the proprietor. Therefore, think twice before you get your company registered as a sole proprietor as this site states all the pros and cons of getting a business registered to get the most out of it.

Business is Directly Proportional to Its Proprietor:

As a business cannot be separated from its owner, therefore,  when the proprietor is unavailable then business suffers a lot in his absence as everything depends on him. Also, if something happens to the proprietor the firm will come to an and end legally. The goodwill of the firm will be buried with the proprietor itself and will no longer be of any use. On the other hand, in a limited company, even if the company is taken over by some other company, nothing happens to the goodwill. One great example of this is when Facebook bought Whatsapp.

Fewer Growth Probabilities:

In case, of a sole proprietorship firm, the growth prospects are nearly zero due to the constraints of funds and resources. A skillful staff and a proper workspace are the two most common elements of business and lack of funds do not satisfy both these elements in the long run which eventually affects the growth of the business. That is one major reason, why startup companies convert into small entities sooner or later.

 

Henceforth, choose wisely before you register your business!

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