Finance is an important factor for the survival and expansion of any company, particularly private limited businesses, in the dynamic world of business industry. For these companies to achieve their strategic goals, promote innovation, and grow, they must be able to make money effectively and profitably. In this research, we explore the many approaches and plans that private limited company can use for business fundraising. Knowing such systems is crucial for managing through the complexities of company finance and grasping chances for enduring growth and prosperity, ranging from conventional channels like equity and debt capital to new choices like government subsidies and crowd fundraising.
What Is a Private Limited Company?
A business or corporation that is restricted by shares and is privately owned is a private limited company. The prefix “Private Limited” or “Ltd.” is used to indicate it in several jurisdictions. It was established by laws and ordinances as an autonomous legal entity from its owners or stockholders.
- Private limited entities or companies are described in Section 2(68) of the Companies Act, 2013 (India).
- A company specifies that no minimum paid-up capital is required (as per the Companies Amendment Act 2015).
- Limit the ability to transfer its shares, as mentioned in the AOA.
- Restrict the total number of its members to 200, except for a one-person business; and
- Prohibit inviting the public at large to sign up for any of the company’s debt instruments or shares.”
Understanding of the Private Limited Business Structure
To get an in-depth overview of the structure and governance of private limited company registration in India go through the table given below:
| Particulars of Pvt Ltd. Companies | Detailed Explanation |
| Limited Liability | The primary aspect that sets a PLC apart is the limited liability of its stockholders. It implies that the business’s debts cannot be repaid using their private wealth. The financial risk to stockholders is fixed at the amount of money they invest in that company. |
| Distinct Legal Entity | Private companies are considered acting under different laws than their owners. The benefits of such a distinction include a company’s permanent existence, which keeps it alive despite ownership transfers. It makes it solely liable for its own acts and liabilities. It can be sued for the wrong it committed and it can sue against the wrongs which have been committed against it. It is one of the best features of the corporate bodies. |
| Shareholding Structure | Shares make up a PLC’s control. According to the number of stocks they possess, shareholders are part owners of the business. Transfers in ownership within the business are possible through the transfer of stock to third parties. This makes the company known among the public at large. |
Different Methods for Raising Finance for Pvt Ltd Company
Private limited businesses can always receive capital through strategies despite these limitations.
Equity Funding for Raising Finance
One of the primary methods for private limited company raise capital is equity financing. Two major channels are apparent in this field which are venture capital funding and personal placement. Through these two methods any corporate body including private companies can raise funds for themselves. Let’s discuss these two one by one in little detail for their better understanding.
Privately Placement
By making shares available to an exclusive number of financiers, private limited businesses can raise money. With this strategy, businesses can obtain funds from people or organizations that are looking to form long-term alliances while maintaining control over the state of affairs.
Venture Equity
Investors in venture capital are regularly approached by firms looking for large amounts of money. In return for equity stakes, these financiers offer capital, networking possibilities, and helpful guidance in addition to financial assistance. This is one of the most common fund raising methods for almost all the corporate bodies in India.
Debt Financing Option for Raising Finance
To satisfy their capital requirements, private limited corporations might look into debt financing solutions along with equity funding with options of bank loans and bond or debenture issuance strategies. These are also safe methods of raising finance for the corporate entities. Bank loans, bonds and debt can be effectively used by the corporate entities in order to make their company grow and develop in the market among the various competitions.
Bank Loan
Offering an individual guarantee or pledged assets, private limited corporations may receive loans from banking institutions. These loans are a frequent option for companies with consistent cash flows since they provide versatility in terms of the rate of interest and payback dates.
Bonds and Debts
A private company may collect funding from institutions or general shareholders by issuing securities or debentures. Shareholders can expect principal repayment upon maturation in addition to periodic payments of interest on these fixed-income investments.
Alternative Sources of Funding for Raising Finance
Alternative sources of finance are non-conventional means by which individuals or firms may raise money or receive funding outside of the usual channels, such as investment capital or bank financing.
One of the most common methods of Crowdfunding is that websites such as Indiegogo, Kickstarter, and GoFundMe enable businesses to collect funds from a large range of supporters, usually in return for gifts, first orders, or payments. Peer-to-peer loans allow connections between borrowers and private lenders, which extend loans at reasonable interest rates.
Governmental Grants and Subsidy
To promote their expansion aspirations, private limited businesses can discover that governmental incentives and subsidies are beneficial forms of non-dilutive finance. Globally, a large number of governments provide a range of initiatives designed to promote growth in the economy, job creation, and creativity. Development of new technologies, promoting exports, ecological responsibility, and training for employees are a few possible areas of focus in these funded initiatives.
Limitations Of Pvt Ltd Company which May Affect Funding
Some of the limitations of the private companies which may affect the funding of the companies are as follows:
- Restricted Access to Capital: Due to being unable to offer stock to the public at large, private limited corporations might find it more difficult than public companies to raise significant sums of money.
- Legal Conformity: Private limited businesses are subject to some regulations, which can result in expenses and difficulties. These obligations include producing yearly financial reports and complying with company law.
- Restricted Expansion Chances: Private limited firms may find it difficult to grow and expand what they do due to constraints on the variety of stockholders and their incapacity to trade shares openly.
- Poor Openness: Private companies are subject to less obligation to disclose than public companies. This could result in a decrease in openness and responsibility towards investors.
Conclusion
To sum up, a wide range of choices for pvt ltd companies to raise capital and pursue their expansion goals with benefits and limitations. Founders may adapt their strategies to meet their monetary requirements and goals for the company, whether through government assistance initiatives, instruments of debt or equity investment, or other forms of funding. Private Limited Company may successfully navigate the challenging world of financial services and embrace new possibilities for growth through the use of these methods.
FQAs
- Can you Raise Capital as a Private company?
Yes, private Ltd companies can raise money in a variety of ways, such as through crowdsourcing sites, angel financiers, venture funding, and equity investments.
- Can a new Private Company get a loan?
If a new private limited business satisfies the requirements of the lenders and proves its honesty, it may be able to obtain funding from the banks.
- Can a Pvt Ltd company invest in the stock market?
According to legal guidelines, a Pvt. Ltd. company can make investments in the stock exchange using an account with a brokerage.
- How to raise funds for a private company in India?
In India, venture capital funds, angel financiers, equity and debt funding, crowdsourcing, government programs, and bootstrapping are all options for private limited company raise funds
- Can a private company raise funds from the public?
No, private companies cannot issue stock to people in general or not even collect capital from the public at large.
- What are the five ways of funding in India?
In India, there are five various means for private limited company raise finance: venture capital firms, angel traders, equity debt financing, and crowdsourcing.
- Does Startupfino help in fundraising?
For assistance with funding for private limited corporations, you may usually get in touch with these groups using the inquiry forms on their official web page, via email, or via Facebook or Twitter accounts.
- How to contact Startupfino to get advice on fundraising for private limited companies?
For assistance with fundraising for private limited businesses, get in touch with angel investor connections, accelerators and incubators, and startup advisory companies.
Swati Raghuwanshi
Swati Raghuwanshi is a lawyer with a passion for transforming intricate legal intricacies into clear and accessible content. Through her writing, she tries to bridge the gap between complex laws and easy understanding, ensuring that everyone can navigate the legal landscape with confidence.
