Why should you consider private limited company registration?

Preamble

Starting a business is easy in India and it will take only a couple of weeks to register a new business in India. There is a different form of new business registration in India, among which private limited company registration is preferred by certain types of business owners, for example for starting a software development company it is suggested to register a private limited company rather than partnership firm registration or proprietorship firm registration. Around 16,000 new companies are registered each month on average which shows the interest of new start-ups to register private limited companies when compared to other forms of business.

Why private limited company incorporation is preferred?

A private limited form of business may seem complex in terms of its legal framework, compliance, etc, but the advantage of a private limited company is much more than what we understand practically.

Set up of a private limited company is not much cheap considering others, while it is most affordable in terms of its advantages of the legal framework.

A business that requires a good positive impression about its size of business and its ability to continue in long term can opt for the private limited company as it is generally thought that the company name with the words “PRIVATE LIMITED” is considered as a big company and something superior compared to partnership business and proprietorship business.

When a new business registration is done in form of a private limited company it is well accepted that the owners are ready to invest money in the business, and it will also give a sense of confidence in running a big business from day 1.

Its a pride and dream of many aspiring businessmen to add a designation as “Director/Managing director”

5 Advantages of private limited company registration

1. Limited Liability

In easy-to-understand terms, we can say as your risk is limited to the amount you invested in shares of the company and the pending amount to be paid for shares already taken up. The concept of limited liability is very important and life-saving in case of certain types of business where the risk high

Example :

XYZ CHITS PRIVATE LIMITED is a chit company engaged in the business of chits, on the day prior to bulk settlement to chit fund holders an amount of Rs.10 crores was withdrawn in cash and kept under the custody of Mr. Fraud manager who is designated as cashier and person responsible for safeguarding physical cash, unexpectedly the manager had looted the money and escaped.

The directors of the company do not have any knowledge or involvement in the theft. In this case, even though the directors are responsible and if they prove that they have taken all necessary steps to safeguard the cash and acted genuinely in the interest of chit fund holders, their personal assets cannot be attached, only the amount they owe to the company can be demanded from the directors.

2. Enhanced Credibility

Credibility is one of the main factors that fuel business growth in the long run, business growth is dependent on the relationship between the stakeholders of the business viz suppliers of goods, customers, government for tax collection, etc. A private limited company is regulated by the Companies Act 2013 which lays down numerous rules and regulations for accounting, and modes of transactions. Limit transactions of certain nature and other disclosures, so it enables transparency in transactions and reliability of financial statements with enhanced reliability.

Example :

One of the mandatory rules for private limited companies is a compulsory audit of books of accounts by a chartered accountant, this ensures the business transactions are genuine and there is no misuse of the position of director for financial personal advantage.

Easy to get investment

In the modernized and liberal business environment, peoples come to invest directly in other businesses, this had opened up gates for new entrepreneurs who have good business ideas and roadmaps for implementation, to get funding from venture capitalists and others. In the case, there is a proposal for investment by venture capitalists, the existing directors can issue shares alone to the venture capitalist and avoid him/her from taking part in business activities.

Unlimited Life

In technical terms, we call it perpetual succession, it means the company will continue to exist irrespective of members (shareholders) going out or coming in. There is a rule that, the private limited company should have a minimum of 2 directors as the statutory limit, Out of two directors if one director resigns for a personal reason then the vacancy of that director shall be filled within the time allowed.

Borrowing capacity

Private limited companies enjoy good borrowing capacity because of robust compliance and monitoring by the Ministry of Corporate Affairs. As we had already discussed in this blog about the credibility of a private limited company, lenders prefer structured and regulated businesses compared to unregulated businesses so the advantage of enhanced funding, reduced interest rate, and flexible repayment terms are available to businesses registered as a private limited company.

Final decision

Even though private limited company requires more compliance, the advantage is more for prospering business. A proprietorship business or partnership business cannot match the benefits that private limited companies provide. You can have a detailed discussion with your company registration consultant for good and expert understanding.

In case you have any further doubts and need to advise on new business registration, we are happy to assist with company registration in Chennai. Just go for private limited company registration with a good company registration consultant if you feel that your business can benefit from it.

So in layman’s understanding, if you need any of these features, go for private limited company registration. You may have understood some basic points to register a private limited company, else if you had come here after considering proprietorship firm registration, just read this guide for proprietorship firm registration. 

Type of business for which private limited company registration is preferred

There are certain types of businesses that require private limited company registration due to their specific advantages regarding the nature of business. It is best to approach a private limited company registration consultant for getting the best advise on the suitability for your type of business and to know how it is beneficial to your business, we have tried to give some of the businesses required to register Pvt Ltd for its advantages.

Information technology and related business – Branding

Services and products provided by  Information technology and its related business are mainly useful for companies in the same industry at large which aggregates the services of small companies and provide end result to its customers.

The majority of clients will be educated, knowledgeable, brand conscious so they prefer the service provider to be reliable and big, and scalable, in the minds of clients private limited company gives the sense of dealing with the right person.

Due to globalization and the era of the internet, transactions and business relationships are spread across the globe, limited liability company is accepted globally as a good form of business so your overseas clients will be happy in dealing with you.

The advantage of branding works in the case of the information technology company

Registration of pvt limited for the benefit of branding for other types of business 

• Event Management company registration
• Tour and travel operator
• E-Commerce platform.
• Training centers
• HR Consulting Business
• Costume designer
• Overseas educational consultancy
• High-end medical diagnostic lab

The benefit of branding is also applicable to above said companies and it will give a competitive advantage to the business.

Construction and land promoters

In the case of construction type of business clients utmost priority is reliability and trust, it is established fact that a private limited company cannot be registered with simple documentation and process. Always it is established fact that branding plays a vital role in client acquisition.

Construction or land promoters business requires crores of investment, and where there is a high investment involved there is a high risk of misuse of funds and misappropriation. The rules and regulations are applicable to a private limited company are regulatory in this matter and force the managerial person and directors to accountable.

The option to add shareholders without intervention in the management of the business gives the additional advantage of getting investment for projects through shares. Only directors can take part in the decision-making process of day-to-day business activities.

Construction business is prone to a low rate of profit percentage hence the tax rate of 25 % compared to other forms gives additional practical net profits available to shareholders.

Business requires similar advantage of capital safeguard

• Finance company
• Chit company
• Automobile dealership
• Manufacturing Company
• Research company
• Pharmaceutical manufacturer
• Hospital
• Large scale Supermarket
• Share trading

High Third-party risk business

There is some business where it is prone to high third-party risk even in normal circumstances which results in huge financial loss, in that case, the advantage of limited liability and the separate legal entity will help to safeguard the personal assets of the business owners.

Nature of business with high financial risk

• Chit fund business
• Finance company
• Pharmaceuticals
• Third-party research business
• Venture capital company

Top 10 tips to choose a private Ltd company name

• Prefer minimum 3 words in the company name, the longer name provides a better understanding of the company business, longer names are approved easily as compared to shorter names, and shorter names tend to have a generic meaning
• Choose a name that describes your nature of business clearly, coin your business name with creativity, avoid an emotional naming strategy choose a name that will be liked by your customers and give an advantage to the business
• Select a unique name so that there will be no confusion with any other company in similar business after approval
• Chances of approval will be higher in case a new word is coined eg: zomato , swiggy, dunzo. Most of the good Dictionary words are already included in most of the company names.
• Do not use the offensive word
• Ignore the list of words prohibited by company naming rules
• Names with internet domain extensions are not allowed
• Names with the same phonetic sound, singular, or plural, will not be approved
• Perform trademark search for all possible matches before application in similar business code
• Perform company name availability check with different spelling for the same name, use contains option while name search.

Once all preliminary points are considered at the business owner level, it is advisable to consult with your company registration consultant near you for getting a better understanding of the availability of the company name.

The company registration process in India

Brief Steps in the company registration process

1. Apply digital signature for all directors
2. Apply for the Director identification number if not applied earlier
3. Apply company name
   – If the name is applied separately choose up to 6 names
   – If preference is given to name application along with complete documentation it is advisable to make sure           everything is alright in the documents submitted
4. Submit all necessary documents after name approval within the time limit after name approval
5. Once company registration is approved incorporation certificate is issued with PAN no and TAN no.
6. Apply for other registration under different acts.

2 options for the company registration process

Option 1: Separate Name approval +  Separate documentation 

In this process name approval application is first submitted, and no other documents for company registration will be submitted this method is suitable when the chances of name approval are at the complete discretion of the registrar, for example, our proposed name may be similar to some other names but if we still need to take a chance for getting a name we may go for this process as it is not consuming.

Option 2: Integrated process

In this method name approval application is not submitted separately, proposed names are to be submitted with all other documents required for company registration, this method is suitable when we are more confident about the approval of the proposed company name. This method is time-consuming if the name is rejected as we need to prepare all documents once again with the proposed name.

Apply ESI or PF separately do not apply in integrated form as approval of the company registration certificate will be delayed.

3 critical tips for Quick approval

• Submit clear and legible self-attested latest documents required for registration
• Draft clear and specific main objects for business
• Avoid submitting unnecessary declarations in case of a re-submission query, provide details as mentioned in the re-submission query.

5 Must do things after private limited company registration

• Appointment of auditor, Auditor appointment is the primary process that should be taken care of, documentation accounting and the filing process is much more complicated for the private limited company so it is advisable to seek advice from the auditor for income tax compliance, MCA compliance, etc.
• Maintain proper and accurate accounts as per the income tax act and mca rules
• Implement an internal process for compliance with the Companies Act and Income tax act.
• File all income tax and MCA returns on time, delay in filing an income tax return or mca return will result in payment of a huge penalty. Even if there is no business undertaken in the company it is prudent to file returns and forms on time to keep the company active, continuous non-filing of MCA annual returns will result in a strike-off of your company.
• Consult your auditor for the day today for legal compliance and filing work on time. Companies Act and income tax act lays down certain sets of rules in accounting treatment and limit the transaction amount and mode of the transaction so in that case prior advice is necessary for regular compliance.

new private Ltd company registration is an easy task with the help of the best company registration providers, it is the primary duty of the directors to comply with all the regulations under MCA, noncompliance with MCA rules and regulations will result in a large amount of penalty and results in strike off of company for continuous failure in filing MCA returns.