There are different reasons why Private limited companies have been the entrepreneur’s best choice. It is because of the numerous advantages which it holds. But there are still some misconceptions and myths about it. In this blog post, I will bust some common myths about private limited company registration for you.
What is a Private Limited Company?
A private limited company is a corporate body with aims to provide goods or services at a higher scale. It has a separate legal entity, limited liability, perpetual succession, easily transferable shares, and also works globally. Private limited company registration is done under Section 2 (68) of Company Act 2013. This gives the privilege of RoC recognition, higher credibility, and easy to raise funds from the market. Its registration gives multiple benefits to the owners and shareholders.
Now, let’s bust some of the common myths about Private Limited Company Registration
Myth 1: Registering a Private Limited Company is a Costly Affair.
Fact: Initially, company registration was surely a complicated process. It was time consuming, costly, and very exhausting. But things have changed so much now because of the various government schemes and upgrades. Internet registration portals are now available, and company registration could be done very easily without much paperwork or procedures. As you might know already, there is no minimum capital required for private limited company registration in India.
Startups can also start with a nominal capital with the allowance to increase it as the business grows with time. This gives flexibility and opportunity to small businesses to register as a private limited company. Through various online services and professional guides, you can easily navigate through the whole process and get your company registered at a relatively low cost. The registration fees have also dropped to a very high extent. It only takes around 10k -20k to get private limited company registration in India. There is in fact, no statutory fees for up to 10 lakhs of authorized capital. It certainly saves so much time, money, and effort now.
Myth 2: Maintenance of Private Limited Company is also a Costly Affair.
Fact: This misconception often arises because of lack of knowledge and understanding. Maintenance of a private limited company seems like a costly affair because it has certain compliance requirements. But with a properly planned budget, you can avoid any financial strain of the future. It’s obvious if you take your business to a higher level with higher credibility and expansion, the maintenance rate will increase as well. But the return it gives is totally worth it.
Regular monitoring is very useful for risk management in business. And because of it you can save your business from different legal disputes. Outsourcing professionals’ expertise as-needed basis is more cost-effective than hiring full time employees. It reduces high costs and compliances. You don’t even need professional services for every aspect of maintenance in business, some things can even go handy with effective technologies. Governments also provide many advantages like grants, incentives, and subsidies to reduce costs. Research well and seek opportunities for these schemes.
Myth 3: Lower Taxation Rate in a Proprietorship or Partnership Firm.
Fact: It’s just a myth. In fact, Private limited companies have lower tax liability. Every registered company in India is liable to pay tax. But the benefits you get with it is what matters. Proprietorship or Partnership firms have a simpler and sorted tax structure. It is very easy for them. But they do not get as many tax benefits as a private limited company.
Proprietorship or Partnership firms lack various advantages which come along with taxation procedures. But a private limited company enjoys multiple taxation benefits like lower tax slabs, tax-deductible expenses, rent, utilities, etc. They get more perks which certainly results in significant savings. These benefits also help in reducing the taxable income of the company.
Myth 4: No Mandatory Audit in a Partnership or Partnership Firm.
Fact: Despite the type, audits are important for all businesses. It ensures financial transparency and accountability. Partnership firms or proprietorships have less compliance requirements, but this doesn’t reflect that audits are absolute to private limited companies only. These types of businesses do not have a legal obligation to conduct audits at certain levels, but it is important to understand the value of audits in terms of risk management. Regular audits ensure the financial health of the company and also build trust.
Proprietorship or Partnership firms need to get their audits done when their gross transaction is more than 10 crore and when net cash transaction is less than 5% Or when net cash transaction during the year is more than 5% and when the turnover crosses over 1 crore. However, in private limited company audits are compulsory regardless of whether any transaction is done or not. Audits can help understand tax liabilities, avoid penalties, and optimize strategies.
Myth 5: Commercial Address is Required for Registering a Private Limited Company.
Fact: This factor just puts entrepreneurs in a dilemma but it’s clearly a myth. A private limited company is separate from its owners. The registered private limited company does not require a mandatory commercial address. A residential address can be valid just after the verification by the authorities. This is because many entrepreneurs start their businesses from their homes only. The verified location is needed for official works or to send legal notices.
It is permitted to use a residential address and it is also very convenient to start the business. But ensure that the location is suitable for your business purpose. In fact, you can also opt for virtual office solutions. It benefits with mail handling and call forwardings. There are other multiple ways to fulfill the requirements of registered office address. But you need to verify the local regulations and work accordingly.
Conclusion
We have now successfully busted these myths about private limited company registration. It is important to remember that every type of business has its own pros and cons. The key is to find the type that suits your business plan. But with all these clarity of myths, you can confidently choose to start a private limited company. If you have any more issues or need any assistance, feel free to ask.
