Private Limited Companies (Pvt Ltd) is a most sought-after business form in India. A private limited can be formed with two directors and two shareholders. Directors and shareholders can be same people and a private limited can have other corporates as shareholders.
Private limited company got features such as 1) limited liability – ie your liability is limited to the extent of of the unpaid capital; 2) separate legal existence – a private limited is a separate legal person; 3) perpetual succession – ownership passes to the successors of shareholders automatically; and 4) transferability of shares – ownership can be transferred in a matter of minutes.
Private limited companies are the preferred entities for venture capitalists and, if you plan to raise capital from investors you should choose a private limited.
If you are business to business (b2b) company, you may need to go for a private limited company as most of the government – public sector companies and corporates tend to ask for private limited company registration for big ticket sized contracts.
Like in the case of any other business setup, after the private limited company registration, you have to obtain an approval for your place of business (Shops & Commercial establishment registration), Goods and Services Tax registration (when your revenue crosses INR 2 million) and Social Security registrations (when your employee headcount crosses the thresholds)
Now you can form a private limited company through a simplified process called ‘Simplified Performa for Incorporating Company Electronically’ (SPICe) in 3-5 days. The SPICe is a single window approval system wherein you will get all the regulatory approvals to kickstart the business in a single application.
Private limited companies has to maintain its books of account, appoint statutory auditors, conduct statutory audits, convening of board and shareholder meetings and filing returns for financials and operations every annum.
Since the failure rate of startups and insolvency problems faced by promoters of companies is slowing down India’s business expansion, government simplified the winding up the process for businesses and brought in a new insolvency code in place.
Simplified striking off process, let’s you wind up the private limited company not in operation for the last two years by filing an application – provided all the statutory and creditors liabilities are settled by the company.
The new insolvency regime also provides for early recognition of loss assets and their restructuring to avoid a huge loss to the shareholders.
Our engagement in the process starts with identifying if Private Limited is the best form of business for you. If yes, we will review your business requirements and identify the registrations and the legal documentation needed.
We can help you, register the company, get a permanent account number (PAN), tax deductions account number (TAN), set up a current account, draft various agreements and policies and put in place a process for accounting and compliance.
Ground work: We will require a 30 minutes meeting or call with founder to understand the main objects for forming a Private Limited, collection of documents and his specific requirements on the constitution of the Company.
This will followed with obtaining of Digital Signature Certificates (DSCs) for Directors and Shareholders of the proposed Private Limited. We will help the Directors to apply for Digital Identification Number (DIN) – an unique identification number issued to Directors by Ministry of Corporate Affairs.
Name Approval process: The name approval is going to be the most time consuming process if you do not have an unique name to your business. Registrar of companies may reject the names which are similar to existing name phonetically or in spelling. You may get a rejection if there are resembling trademarks or the name applied is generic in nature.
We recommend founders to do their homework on company names and come up with at least 3-6 significantly different and unique names for an easy approval.
Finalising Constitutional Documents:Memorandum of Association (main objects of company, capital - shareholding pattern are covered in MoA) and Articles of Association (bye laws for the operation of the business are covered in AoA). We can help you draft one custom Memorandum or Articles of association if the templates suggested by Companies Act isn’t fit for you.
Private Limited Registration: Filing signed MoA, AoA, updating registered office of the company and paying government fees and stamp duty is the third and last step in the process. After the Registrar of Companies (RoC) finds that you have complied with all norms, Certificate of Incorporation is sent via email.
Company PAN and TAN will be emailed by Income Tax department within couple of days of incorporation.
Registering a company is a beginning of a journey. Please keep in mind that Private Limited will require your regular attention and some focus areas you ought to be careful are:
Corporate tax: It is the Income tax on profits of a private limited. Corporate taxes on profits in India are 30%, but if the turnover of a company does not exceed 5 crores, tax rate is 29%. Profit making companies requires to pay advance corporate tax on a quarterly basis.
Dividend Distribution Tax: A company is subjected to dividend distribution tax (DDT) as well when it pays dividend to its shareholders. Under the Income Tax Act, DDT is charged at the rate of 16%.
Exceptions: -Startups recognised by the central government can avail tax holidays in the initial years of setting up. Speak to our executives to know more about tax incentives for startups.
Good and Services Tax (GST): Any business dealing in purchase and sales of goods and services in India comes under purview of Indirect Taxation. You have to enrol for GST as and when you reaches the turnover thresholds.
Statutory Audit and maintenance of books of accounts is mandatory if you are running a private limited company. You have to appoint a statutory auditor once you incorporate your private limited company.
Annual reporting of financial position and operations of the company to Registrar of companies and Income Tax department is mandatory.