Unlike other countries, Indian business entities aiming to establish a credible and successful business can get many benefits from this.
The Companies Act 2013, exempts private limited companies (PLC) from several legally required compliances. Also, gives them the authority to sue third parties in court because they are a legal organization. Furthermore, because private limited companies have no minimum capital requirements, complete ownership, business, and management separation, and owner liability limitations, they are also cost-effective to launch and operate.
Before understanding how your startup can be registered as PLC, let’s first understand its importance from the Indian startup perspective.
Understanding Private Limited Company Registration
There are two main benefits to incorporating a private limited company service: it creates a separate legal entity and provides its stockholders with limited liability protection.
Entrepreneurs who want to start “How to Form a Private Limited Company in India?” must follow the guidelines provided by the Companies Act of 2013 and the Ministry of Corporate Affairs (MCA). Both small and large entities can reap numerous advantages by registering their corporation as a private limited company and establishing a strong, safe, and long-lasting corporate structure.
The Importance of Private Limited Company Registration
According to the Ministry of Corporate Affairs, over 1.5 million companies are registered in India, with a significant proportion being private limited companies. This trend underscores the growing recognition of the benefits associated with this business structure.
The Benefits of Registering a Private Limited Company for Entrepreneurs
Access to Funding
Registered private limited companies have better access to funding options, including venture capital, angel investors, and bank loans. Investors are more likely to invest in a formally registered entity due to the regulatory oversight and transparency involved. The funding investors agreed that a Private Limited Company is the most common name in India.
Some big global businesses and monopolies that are registered as Private Limited Companies include- Parle G, Google, Coco-Cola, American Express, Jaguar, and more. In the same way, you can also find plenty of similar examples in the Indian business market.
Attracting Talent
A registered company attracts better talent as it is seen as more stable and credible. Employees prefer working for companies that comply with legal requirements and offer job security. This can lead to a more motivated and productive workforce, contributing to the overall growth and success of the business.
Moreover, registering as a private limited company can offer stock options to its employees, which serves as a powerful incentive for top talent. This not only helps in retaining skilled professionals but also aligns their interests with the long-term goals of the company, fostering a culture of ownership and commitment.
Business Continuity
Private limited companies enjoy perpetual succession, ensuring business continuity despite changes in ownership. This stability is crucial for long-term business planning and growth. Unlike other business structures, the existence of a PLC is not affected by the death or departure of its shareholders or directors, providing a sense of security and stability to the business.
This continuity is particularly beneficial for businesses looking to build a lasting legacy and plan for future generations. It allows for seamless transitions in leadership and ownership, ensuring that the business can thrive without interruptions.
Legal Compliance and Governance
Registering as a private limited company ensures compliance with legal and regulatory requirements. This reduces the risk of legal issues and enhances the company’s reputation in the market. Compliance with laws related to taxation, employment, and business operations is easier to manage within a structured framework provided by a PLC.
Additionally, private limited companies benefit from improved governance practices. The requirement to maintain detailed records, conduct regular audits, and hold board meetings ensures that the company operates transparently and ethically, which can enhance its credibility and trustworthiness in the eyes of stakeholders.
Attracting Banks and Financial Institutions
Small corporations classified as private limited corporations are required by law to register with the Ministry of Corporate Affairs’ Registrar of Companies (RoC). Along with several other provisions mentioned in statutes like the Trademark Act, Names and Emblems Act, Income Tax Act, GST Act, EPF Act, ESIC Act, Shops and Establishment Act, Contracts Act, SEBI Act, etc., the Companies Act 2013 and the Company Incorporation Rules 2014 primarily govern the registration process.
Banks and financial institutions prefer dealing with registered companies due to their structured management and transparent financials. This can lead to easier access to loans and credit facilities, which are essential for business expansion and growth. A PLC’s credibility and legal standing make it a more attractive candidate for financial support compared to unregistered or informal business entities.
Furthermore, the ability to showcase a robust business plan and financial stability can help a PLC negotiate better terms for loans and credit, reducing the cost of capital and enhancing the company’s financial health.
Low-Income Tax
The Income Tax Act’s Section 80IAC grants shareholders of startups established as either private limited companies or limited liability partnerships (LLPs) three consecutive financial years of tax holidays.
One of the significant advantages of registering a private limited company is the potential for tax benefits. Private limited companies often benefit from lower tax rates compared to other business structures. The Indian government provides various tax incentives and exemptions to encourage entrepreneurship and business growth, which can significantly reduce the tax burden on a PLC.
By taking advantage of these tax benefits, a private limited company can reinvest more of its earnings into business development and expansion, fueling further growth and innovation.
Smooth Incorporation
With the launch of the SPICe+ application, the company registration procedure is now entirely online. The online program SPICe+ / INC 29 allows users to register a company and access ten additional services provided by the Ministries of Corporate Affairs, Labor, and Finance. These include creating a current bank account for the business and submitting applications for DIN, PAN, and TAN as well as registrations under the Shops & Establishment Act, GST, PT, EPF, and ESIC.
The process of incorporating an online business registration service in India has become increasingly streamlined and efficient. Online business registration services offer a hassle-free and quick way to register a company. This ease of incorporation encourages more entrepreneurs to formalize their businesses, enabling them to take advantage of the benefits that come with being a registered entity.
Moreover, the availability of professional services and guidance throughout the incorporation process ensures that entrepreneurs can navigate legal requirements and formalities with ease, reducing the risk of errors and delays.
No Need for an Audit Committee
To enhance the caliber of the Board of Directors’ judgments about the company’s financial management, Section 177 of the Firms Act requires the Board of Directors of all publicly traded firms to establish an audit committee. Thankfully, since private limited firms are not listed and their shares are not publicly held, they are free from this obligatory need.
Private limited companies, particularly those with limited revenue or small-sized operations, are not required to establish an audit committee. This simplifies the management structure and reduces administrative burdens, allowing business owners to focus more on core activities and strategic planning.
This flexibility is particularly beneficial for startups and small businesses, which can allocate their resources more efficiently without the added complexity and cost of maintaining an audit committee.
No Capital Requirement
Another significant advantage of registering a private limited company is the less demand of a minimum capital requirement. Entrepreneurs can start their business with minimal capital investment, making it accessible to a broader range of individuals. This feature is especially beneficial for startups and small businesses with limited initial funding.
The flexibility to start with low capital allows entrepreneurs to test their business ideas and gradually scale up operations without the pressure of meeting high capital requirements from the outset.
Shareholder Minimums Are Low and Maximums Are High
A private limited company requires a minimum of only two shareholders and allows for up to 200 shareholders. This flexibility enables entrepreneurs to bring in a diverse group of investors and stakeholders, facilitating better decision-making and resource pooling. The ability to have multiple shareholders also makes it easier to raise capital and distribute ownership among key contributors.
This structure is ideal for businesses looking to expand their investor base and attract funding from multiple sources while maintaining control over the company’s operations and strategic direction.
Ultimate Power to Sue
Registering as a private limited company grants the entity the legal capacity to sue and be sued. This legal recognition provides a layer of protection and recourse for the business in case of disputes or contractual breaches. It ensures that the company can enforce its rights and obligations in a court of law, safeguarding its interests and assets.
This legal empowerment is crucial for businesses operating in competitive and dynamic markets, where the ability to resolve disputes effectively can be a significant advantage.
Competitive Advantage
Formal registration provides a competitive advantage by enhancing the company’s credibility and trustworthiness. This can lead to better business opportunities and partnerships. A registered company is perceived as more professional and reliable, which can attract more customers, clients, and collaborators.
In a crowded marketplace, having a registered business can set a company apart from its competitors, providing an edge in securing contracts, partnerships, and market share.
Learn more about the significance of Private Limited Company Registration, here- https://legaljini.com/blog/private-limited-company-registration-importance-a-stepwise-registration-guide/
Steps for Online Company Registration Process in India
Step 1: Choose The Specific: The first and most important step in registering a private limited company is choosing a unique and appropriate name while carefully following the guidelines provided by the Ministry of Corporate Affairs (MCA).
Step 2: Get Digital Signature Certificates (DSC): Entrepreneurs must acquire DSC for the proposed directors of the business. During the registration procedure, electronic papers are signed using this digital signature.
Step 3: Get Director Identification Number (DIN): The MCA requires all directors of the corporation to apply for a DIN, or unique identity number. This can be completed by submitting an online application under the Company Registration and Spice Part B.
Step 4: File All Documents: The INC-33 e-Memorandum of Association (MoA) and INC-34 e-Articles of Association (AoA), which are vital documents outlining the company’s mission, operational framework, and governance guidelines, should be carefully drafted with the help of online business registration Service.
Step 5: Get a Certificate of Incorporation (COI): The CRC issues a Certificate of Incorporation following the documents’ successful verification and approval. The conclusion of the company registration process is shown in this document.
Step 6: Get Permanent Account Number (PAN) and Tax Account Number (TAN): Following master data, NSDL delivers PAN and TAN—which are necessary for tax compliance—to the company’s registered email address following receipt of the Certificate of Incorporation.
Conclusion
Startups frequently have to make difficult decisions about whether or not to incorporate their firms. The reason for this is that entrepreneurs find it difficult to finance the high costs associated with incorporation and related compliances early in their company ventures. They frequently overlook the fact, nevertheless, that the costs of not being incorporated outweigh the benefits and penalties. Regarding legal status, startups might choose to be formed as a partnership firm, limited liability company, or private limited company. A private limited corporation is the most practical choice out of them because it offers several advantages over other options.
By choosing an online business registration service, entrepreneurs can streamline the registration process, ensuring efficiency and compliance.
LegalJini is the best company registration service for the private limited company (LLP). They offer businesses and entrepreneurs online registration to establish compliance and formalize their corporate entities with local laws and regulations, saving their reputation and cost in the long run.
So, what are you waiting for? Get connected with LegalJini now!
