Do you want to be an entrepreneur? Initiating a business can be exciting and challenging at the same time. There are a lot of things that you will have to focus on. Before initiating, you will have to choose which type of entity will be suitable for your business.
The type of business structure becomes crucial as it will impact your taxes, amount of paperwork needed and personal liability you will be facing. Here with the help of this blog, you will be able to know about the company formation in India and its advantages.
Entitling your business with a legal identity is very crucial. You might also consider consulting a corporate lawyer for the same. Setting your business up as a private limited company is by far the most convenient way to go about it.
Defining private limited company
Understanding a private limited company is a privately owned company for small businesses. This type of business entity restricts the owner’s liability to the shareholdings to fifty and publicly restricts shareholders from trading shares.
There are two types of a private limited company.
– A private limited company by shares – in this type of company, the members’ liability is restricted to the amount unpaid on shares owned by them.
– A private limited company by guarantee – it is one where a member’s liability is restricted to the amount, they have given the nod to undertake at the time of winding up.
Advantages of the private limited company
Restricted risk – the shareholders of a private limited company have limited liability, which means that as a shareholder, you can be liable to pay for the company’s liability only to the extent of the contribution that you have made.
Legal entity – a private limited company has a unique legal entity from you, which means the company will be responsible for managing its assets and liabilities, debtors and creditors. Nonetheless, you will not be responsible for the same. That’s why the creditors cannot come after you to recover the money.
Business flow – a private limited company, enjoys perpetual succession because the company is its own legal entity. Shareholders and employees act as agents of the company.
Infusing funds – though private limited company registration comes with various compliance requirements. It is desired by the entrepreneurs as it helps invest funds via equity and at the same time limits the liability.
Trustworthiness – Indian companies are registered under the companies act with the RoC (Registrar of companies). Also, anyone can check the details of the company as well as all the directors via MCA. That’s why a private limited company system of a business is more trustworthy.
Tax advantage – the private limited company can enjoy the tax advantages. They pay corporate tax on their taxable profits and are excluded from higher personal income tax rates. Setting up a company instead of continuing as a sole trade or sole proprietor opens the doors to more tax-deductible costs and allowances redeemable against the profits.
Certain advantages over the public company.
– For PLC, a minimum number of shareholders required is two, while for the public company, it is a minimum of seven.
– Public company is obliged to reveal its financial reports to the public every quarter of the year, as it affects public investment. At the same time, a PLC is not subjected to any such compulsion.
– Decision making and management is more abstract and complex in public companies as more number of shareholders is to be consulted. In comparison, PLC does have any such complex procedure because of less number of shareholders.
– Public company requires a minimum share capital of Rs. 5 lacs, while for PLC, it is Rs. 1 lac, but now there is no such minimum compulsion.
– Confidential information like executive compensation, legal settlement and other crucial information cannot be kept reserved in public companies, but in PLC, such information is more secure.
Hence, PLC is straightforward to form compared to a public company as it involves a less intricate process. But the principal advantage of a public company as raising funds in a private company is possible from different sources without going to banks, while in PLC, all the funds will be raised by existing members, shareholders, promoters and investors.
How long does the registration take?
The whole process includes approval of name, DIN, and incorporation that usually takes approximately 3-4 days.
– Approval of name via form INC-1 takes 6-7 days.
– Approval of DIN via form DIR-3 takes 1-2 days.
– Incorporation of the company via INC-7 and INC-22 takes 7-10 days.
Entirely it would take around 15 to 20 days.
The following documents have to be submitted –
– TAN registration.
– PAN registration.
– Submission of E-forms with RoC.
– DIN (2 nos.)
– DSC (2 nos.)
– Name approval (INC-1), including one re-submission.
– Drafting MoA and AoA.
– Issuance of certificate of incorporation.
– Includes government fees and stamp duty of up to Rs. 1 lac authorised capital.