Facts and Myths about Private Limited Company Registration in India

Facts and Myths about Private Limited Company Registration in India

India is the second most populated nation in the world with about 1.3 billion people and a strong political background. With such a big economy, starting a new venture can be an overwhelming process. Though, you will have to make many decisions as an entrepreneur or a business founder and consider important facts before registering your company as a legal entity. In India, the authority responsible for forming and registering companies is the Registrar of Companies (ROC), which is controlled by the Ministry of Corporate Affairs.

You can use any name of your choice for your company

In India, you have the freedom the choose the name of your company as long as they are unique, non-abusive and appropriate. After considering certain rules, you can select a suitable name and file it to the registrar for approval along with the suffix, in the end, stating the business structure you will adopt.

Any citizen of India can register for a Private Limited Company

Although we are aware that every Indian citizen can apply for a private limited company, people applying may face certain restrictions as per the Companies Act 2013 like who can be the director. Earlier, the act required a minimum of two members to form a company but after 2014 April, this has been changed a bit. Now, even a single person can hold 100% shares of a company under the One Person Company structure and called a Private Limited business.

The company’s directors must own shares in the company

Shareholders buy the shares, while the board of directors supervises, controls, and administers the company’s operations. The directors and shareholders in many Private Limited Companies are the same individuals. Every director doesn’t need to own stock in the company.

Turnover or sales level

Many believe that before registering a venture, the sales level or the turnover of a company must reach a certain level. However, it is not true. You can register your company from scratch and there is no obligation that while the time of registration your company has reached a certain turnover.

Cost matters and time

If all of the relevant paperwork is in order, forming a Private Limited Company takes fewer than three working days. There was a misconception that forming a Private Limited Company was prohibitively expensive due to the Rs.1 lakh paid-up minimum capital. That criterion is no longer in effect, making the process of forming a business more cost-effective. Undoubtedly, there may be continuous expenses associated with running a business. The size of these will depend on what kind of business you run.

Registered office myth

Many business owners think that before registering their company, they need to have permanent office space. However, it is not true. The registered office address can be any address that can be accessed, including your rented house or small office space. Provided that, the company must affix the name and address of its registered office in legible letters outside the place where it is carrying out its business operations.

Shareholders and Directors meetings

Every private limited company is responsible to hold at least four board meetings in a financial year with a gap of no more than 120 days. Annual General Meeting must be maintained every year other than meetings and dealings arising between annual shareholders meeting.

Private Limited Company for Startups

Many startups prefer the structure of a Private Limited Company. Even though many believe that registering a private limited company is a long and hefty procedure, they are the most suitable and simple form of business structure. In fact, most investors are inclined towards investing in private limited or partnership firms as compared to the other business forms.

Investment in other companies

Once you form a company, it becomes a separate legal entity and can buy or transfer the share of another company under its name. Once incorporated, the shareholders of the company can get shares of the other company under the name of the registered company legally. 

The Administration

Because there are more shareholders in public limited businesses, the decision-making process is more complicated. In private limited firms, such problems do not exist. Furthermore, with lesser short-term objectives, management can concentrate on long-term objectives and advantages. As a result, their understanding of the firm improves.

Audits and reports

Proprietorships and partnership companies must submit a tax audit report if their annual turnover surpasses Rs.1 crore or their profits do not exceed 8% during the financial year. A private limited firm, on the other hand, must have its financial accounts audited every year, regardless of sales turnover or profitability.

If you need any help with company registration in India, Contact DailyHawker.

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