Startup-Private Limited Company

Overview

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.

Benefits

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.

Documents Required

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.

Procedure

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

FAQ's