As the startup scene grows in India, it is important to understand various business registration options. A private limited company is one such option that you can consider.
What is a Private Limited Company?
A Private Limited Company (PLC) is a common legal entity in India, regulated by the Companies Act, 2013. It needs at least 2 Directors and 2 Shareholders, with one Director being an Indian resident and citizen. To register:
2 Directors, one Indian resident
2 Shareholders (Directors can be shareholders)
An Indian office address
Most sectors allow 100% foreign ownership, making PLCs a popular choice for foreign subsidiaries in India.
The benefits of a private limited company are as follows:
Limited Liability: Owners' assets are protected; they are liable only for their invested amount if the company faces financial troubles.
Tax Efficiency: Private limited companies enjoy tax relief on profits and lower-taxed dividends, plus other tax advantages.
Separate Legal Entity: The company is distinct from its owners; its assets are not used to cover business debts.
Easier Capital Raising: Attract investors, issue shares, and get loans, or bonds more readily, especially from high net-worth individuals.
Easier Maintenance: User-friendly online tools simplify financial management, filings, shareholder meetings, and records.
Flexible Management: Owners have full control over management and can appoint a board of directors.
Professional Image: Projects credibility, trust, and longevity, crucial for attracting customers and investors while ensuring protection from creditors.
Tax And Process
Corporate Tax Rate: Private Limited Businesses in India face a lower corporate tax rate of 25%, making it favorable compared to other business types.
No Dividend Distribution Tax: Private Limited Businesses don't pay Dividend Distribution Tax (DDT) on dividends, increasing shareholder earnings.
Employee Perks: Private Limited Companies can provide tax-deductible benefits like housing, travel, and medical allowances, attracting top talent while reducing tax liabilities.
Depreciation Benefits: Private Limited Companies in India can deduct a specific amount yearly for asset depreciation, reducing tax expenses and improving cash flow.
Founder/Director's Compensation: Founders or directors aim to maximize profit. They can receive profit in pre-decided ratios as dividends. To save taxes, they may opt for salary instead, which becomes an expense for the company.
Identity and Address Proof and PAN Card: Directors and shareholders need valid identification (PAN card, passport, voter ID) and address proof (Aadhar card, bank statement, driver's license).
Memorandum of Association (MoA): A legal document defining the company's goals, registered office, liability, and share capital.
Articles of Association (AoA): Internal rules for business conduct, covering share capital, share transfer, director powers, and more. Also a public record.
Address Proof of Registered Office: Evidence of the registered office address, such as property ownership, rental agreement, and utility bills.
Digital Signature Certificate (DSC): A secure digital key for online document signing, ensuring legitimacy and security in the registration process.
Director Identification Number (DIN): A unique ID for company directors, obtained through the Ministry of Corporate Affairs (MCA).
Certificate of Incorporation: Issued by the Registrar of Companies (RoC), confirming the company's registration, legal status, and other essential details.
Step 1: Obtain a Digital Signature Certificate (DSC)
Step 2: Procure Director Identification Number (DIN)
Step 3: Reserve a Unique Company Name
Step 4: Obtain a Certificate of Incorporation
Step 5: Submit all the supporting documents required for the registration
Can a private company use a residential address for incorporation?
Yes, a residential address can be used as the company's registered address for incorporation.
What are MOA and AOA?
MOA (Memorandum of Association) defines a company's constitution, powers, and objects.
AOA (Articles of Association) details rules and regulations for company management.
What's required to use "Private Limited" as a suffix in an organization's name?
The organization must be registered as a Private Limited Company with the ROC (Registrar of Company) in India
How many directors can a Private Limited Company have in India?
A Private Limited Company in India can have a minimum of 2 directors and a maximum of 15 directors, extendable by special resolution.
Are Private Companies required to release annual reports for public access?
Private Limited Companies must file annual reports with the ROC (Registrar of Companies) but are not obligated to release them for public access.