How can a Private Limited Company take Investment

Every business requires capital from time to time to survive and conduct business operations successfully. Funding is an important variable in capital structuring. For instance, in a sole proprietorship outside financial assistance can only be taken as loan not as equity. How can a Private Limited Company take investment. Similarly outside capital cannot be called in form of equity in case of partnership and limited liability partnership.

If someone wants to make an investment in either of the three forms it can be only in the form of debt. However, the investor can become a partner in both the types of partnership.

Allotment of shares

When it comes to companies, receiving investment is easier. There are quite a few channels through which capital can be raised. The simplest way being allotment of equity shares. A company, be it public or private, can make a public offer and issue shares in lieu of money.

The promoters of a company can make those people shareholders or owners of the company. However, there is a catch that unlike public companies, shareholders of a private limited company cannot transfer their shares.

A private limited company can allot equity shares as well as preference shares to public. The allotment of shares can be made to individuals, companies and other legal persons.

Foreign direct investment

Another channel by which a private limited company take investment through foreign direct investment (FDI). This can be done either through approval route or automatic route. For investment through approval route, prior Government permission is required, like for investment in courier services, financial sector, petroleum sector, defense, integrated township etc.

Convertible debentures

Debentures are debt instruments which get redeemed on maturity. The redemption can also be by way of conversion of equity shares of the company. On maturity the debentures are cancelled and equity shares are allotted to the debenture holders at a pre-determined price.

A private limited company has liberty when it comes to accepting investment. Since investors are only liable up to the value of shares they hold, investment in a company is preferred. Equity funding is required for growth and development of business which can be easily acquired for a private limited company.

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