What Are the Liabilities of Entrepreneurs Who Want to Start a Private Company?

There may be different liabilities based on types of organization to started. Therefore, entrepreneurs must properly determine the type of organization and they must scrutinize pros and cons of each type while they go into entrepreneurship.

Organizations may be divided into two as private company and equity company in terms of rights and liabilities of partners. For private companies, partners’ their own assets, abilities, and credits play an important role in the process of establishment and operation. This type of company is also divided into two as collective company and limited company.

Private Company:

Liabilities of shareholders with legal entity are unlimited and they are liable to third parties due to partnership debts. In other words, partnerships in which liabilities are personal are called private companies. Personal unlimited liability means that if the company is in debt, entire assets of person will be at risk. Any joint share cannot be sold or transferred without all shareholders’ consents. Liabilities of the partner who leave the company remains for a while.

Advantages of Private Company:

  • Establishment of this type of company contains less bureaucratic procedure as well as it costs less; low accountant charge, cumulative multi-stage tax system, low charges for ratifying the books are some of the benefits of this type of company.
  • Private companies are not liable to minimum capital investment.
  • Personal labor and commercial credit may be counted as capital investment.
  • Private companies are not subject to independent audit.
  • Because private companies are not subject to independent audit, they do not have to set up a website.  
  • Private companies are allowed to change into another private company or equity company.
  • Private companies are not obliged to form a general board orand to hold periodic meetings.

Disadvantages of Private Company:

  • Private companies are obliged to pay income tax and rates of tax may change between 15-35% to by turnover.  
  • One of the partners’ personal creditors may demand denouncement of the company if they cannot collect their credits from the partner.
  • The bankruptcy of one of the partners is one of the reasons to terminate the company.
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