Every individual has a dream of owning their business and before starting a business one should analyze that what is required to run the successful business. For running a successful business, entrepreneur should choose the appropriate type of business entity that best suited their business requirement which is one of the most crucial task. Most of the entrepreneur preferred to opt for a Private Limited Company for starting and running their business. A Private Limited Company is a company in which there are relatively few number of shareholders and which are privately held by them only. Directors run the Company on the behalf of shareholders but they are not the owners of the Company instead they work for the betterment of shareholders. Although in case of Private Limited Company Member’s or Shareholder’s & Director’s of the Company are generally Common. There are various reasons & also advantages to opt a Private Limited Company by an entrepreneur which are listed below:
Advantages to Opt a Private Limited Company
Easy to get funding: Funding is essential for every business. Through Private Limited entities, entrepreneur can easily get equity funding (Equity Funding is a type of mutual fund through which one buys ownership in business in form of shares). Being a legal entity, Loans could also be taken from Banks easily.
Limited Risk: One of the most important advantage of owning a Private Company is that financial liability of its shareholders is limited to its shares. Hence, if Private Limited Company faces any financial trouble then neither directors nor shareholders would be held liable.
Undisturbed Existence: Private Limited Company continued to be in existence even after the death or separation of any of the owner i.e. shareholders. Being an independent legal entity, it continues to run after death of the owner or its separation from business.
Trading of shares restricted: The restriction on trading of shares is a disadvantage to few shareholders who want to sell their shares to outside buyers because in a Private Limited Company shares are first offered to existing shareholders before they are offered to outside buyers. But it is also advantageous as the risk of hostile takeover is low in a Private Companies. Hostile Takeover is the acquisition of one Company by another that is accomplished by going directly to the Company’s shareholders.
Separate Legal Entity: A Private Limited Company is a legal entity separate from that of its members. Hence, a Company being a legal entity can own assets and also incur debts.
Tax Benefits: Private entities are required to pay Corporation tax on their taxable income which is constant for all types of businesses and exempt to pay higher income tax personal rates. Private Companies also get various tax benefits in addition to limited liability.
Lesser Compliance’s: Private Companies have granted various exemption from department. Hence, it is required to follow lesser compliance’s as compared to Public Company.
Therefore, there are various advantages for incorporating a Private Limited Company. For incorporation of a Companies, Department has introduced SPICE forms INC-32 which helps in Fast Track incorporation. SPICE INC-32 forms can help to incorporate a Company in a single process instead of following various steps. Hence, the time taken for incorporating a Company is relatively less than before. It usually takes 10-15 working days subject to ROC processing time.
Private Limited Company Registration Process
Step-1 is to initiate the processing ofDigital Signature Certificate for minimum 2 Director's as it is required by Law. After Processing of DSC for both the director's one has to file a DIN Approval application for both the director's in form DIR-3 as prescribed by MCA under Company's Act, 2013.
Step-2 After Processing DSC & DIN, applicant will file company name approval application in form INC-1 as mentioned in the rules prescribed under Company's Act, 2013. Registrar of Company usually take time of 4-5 working days to process this application & approving the name.
Step-3 Once Company name get approved, There are certain mandatory documents & declaration's has to be submitted before the Registrar of Company in form INC-32 along with the form INC-33 for Memorandum of Association & form INC-33 for Article of Association in form INC-34 for final approval of Company.
If all documents are correct & in order, ROC will approve the application & issue final registration certificate. It is also called Certificate of Incorporation.
This is how one can form a private limited company in a very simplified manner in just 3 simple steps.
Documents required for incorporating a Private Limited Company are:
For Directors And Shareholders (In Scan only) :
1. PAN Card of Individuals
2. Identity Proof - Anyone (Election ID/Passport/Driving License/Aadhar Card)
4. Address Proof - Anyone and Latest by One Month (Bank Statement/Mobile Bill/Telephone Bill/Electricity Bill)
Proof of Registered Office
If premises are rented: Rent agreement
If premises are owned by any Director or any relative: Electricity bill (not older than 2 months) + Registry Proof+ NOC from the owner.
Information required for incorporating a Private Company:
Educational qualification of Shareholders and Directors.
Mobile numbers and Email Ids of Directors.
Place of birth of Shareholders and Directors.
Hence from the above we can say that there are lesser formalities for incorporation of Private Companies including paper formalities and time. Apart from formalities, there are also various advantages stated above in case of Private entities.