A Private Limited Company Registration aka Limited is a type of company with a minimum of two and a maximum of 200 members. As the name suggests, it cannot raise funds from the public, which means that the company cannot issue shares publicly. No paid up capital is now required to set up a limited.
Some Benefits of Being a Private Limited Company Registration
The liability of the owner of the company in relation to the debt of the company is limited only to its shares.
The company’s shares are easily transferred to another person.
The company can issue debentures and receive funds from public platforms, making it easy to raise funds.
Limited has more tax advantages and the percentage of tax applied is also lower than other types of company registrations.
How to register a Private Limited Company Registration
Get the Directors Identification Number (DIN), which is a unique code that requires you to have PAN card, Aadhaar card, bank statement, phone and electricity bill
After that, a name registration application has to be filed.
Now, you have to draft the MOA and AOA. The MOA lays out the company’s items while the AOA specifies the company’s rules and regulations.
Now apply through SPICE-E form on MCA website and get PAN and TAN application.
If all your papers are in order, you are done with your application.
Read More: Apply Public Limited Company Registration
Importance of choosing the right business structures
Career building blocks at work
Carefully selecting the business structure is important as it affects your income tax return. Each business structure has its own compliance, and therefore you have to keep in mind how to set up a company in India. The company is required to file annual returns and income tax returns with the Registrar of Companies.
The ledger of the company is compulsorily audited every year. Legal complications require spending money on tax filing specialists, accountants, and auditors. Choose the right business structure when thinking about registering your company in India.
A businessman should have a clear idea of what type of legal compliance he is or is prepared to deal with. Some business structures are investor friendly while others are complex. The investor would prefer to go with a legal and recognized business structure.
Here are some important questions that you should ask yourself before deciding about starting your company in India. They are important in deciding the next action plan.
1. Should your initial investment affect your choice of business structure?
Yes! If you need to spend less, you should go with a partnership or sole proprietorship.
If you can recover compliance and setup costs, you may prefer to select a Private Limited Company Registration or LLP.
The registration cost of a single owner company is around Rs 2,500, while a partnership firm costs around Rs 5,000. If you join a private (LLP or LLC) company with a minimum authorized capital of Rs 1,00,000, then registration will cost you Rs 7,000.
2. What are the income tax rates for each business?
For a proprietor, an income tax return is similar to a personal income tax return filing.
Income tax return filing for proprietor
For an LLP, the income tax return is filed under Form ITR-5. For a turnover of more than 40 lakhs, you will have to undergo a tax audit.
3. How many partners or owners does the business have?
In the case of a person managing the entire company, it is an excellent option to choose a person’s company. If there is more than one owner, you can choose a private limited company or limited liability partnership.
4. Are you willing to bear the entire business responsibility?
HUFs, partnerships, and sole proprietors will have unlimited liability in business structures. In case of default loans, funds will be recovered from the partners or members in the profit sharing ratio. In this case personal property risk is high. LLP and companies have limited liability. The liability of the member is limited to the contribution amount made by the share price of each member.
5. What are the plans for obtaining funds from investors?
Investors stay away from unregistered business structures. Units like Private Limited Company and LLP are trusted by angel investors and venture capitalists. You should seek the help of a lawyer before choosing the best business structure for you.
6. How to choose the most suitable structure?
There are three important factors to choose from to include a company in India:
Taxation: Business owners who want to report their business losses and gains on their personal tax returns and who are taxed on net earnings from the company are required to select a “pass-through entity”. This includes participation in India, sole proprietorship, and LLCs. The owner who needs to use the corporate structure to take advantage of corporate tax rates must go with the C Corporation or S Corporation business structure.
Risk: A business is always risky and business owners should consider opting for a business structure capable of acquiring their personal and valuable assets from business responsibilities. A corporation or LLC can insulate the owner’s personal property from business litigation and creditors.
Read Also: Producer Company Registration
Complexity: LLCs and corporations require detailed record keeping and adherence to a comprehensive list of requirements to govern limited liability protection.
Additional factors are:
Control: The business owner’s level of control towards the business directly affects the company registration structure. For example, if you are the business owner who follows managing the company as an individual, then you should be prepared to live as a sole trader.
Complexity and Legal Structure and Cost of Formation: There are various legal structures, and each has an ideal set of complexities, procedures and costs. For example, a sole trader needs some reporting that he can do on his own. A more complex structure, like a trust, has strict reporting requirements and must be established by an accountant or solicitor.
Tax implications: The business legal structure has the necessary effect on the tax amount you pay. A sole trader can enjoy tax benefits by claiming personal tax returns whereas a trust is not required to pay income tax on profits.