The most commonly
used structure for carrying on medium to large business is private limited
company. Liabilities of shareholders (Owners) in a private limited company
remain restricted to their subscribed share capital and their personal property
remains protected from the liability of the company. Broadly speaking, a private limited company stands between
partnership and widely owned public limited company. The private limited companies who enjoy its distinguished
legal entity and the private companies which are the subsidiary of the other
public companies are differentiated in Companies Act 2013.
A private limited company has to be registered with the Registrar of Companies (ROC), who upon completion of the registration process, issues a Certificate of Incorporation (COI). After receipt of subscription money (share capital) to Memorandum of Association, a Certificate of Commencement of Business (CCB) has to be secured to commence business. Registering for a private limited company means the company becomes regulatory-compliant. This makes the company attractive to venture capitalists and private equity funds and is ideal for anyone who is looking to raise capital from external sources and/or give ESOPs to employees. Bankers and other Lenders are more inclined to lend money to a private limited company than to a Proprietorship / Partnership / LLP. A summary of advantage and disadvantage of proprietorship business model are as follows:-
| Advantage | Disadvantage |
|
|
| Proprietorship
Concern | Partnership Firm | Limited Liability
Partnership (LLPs) | One Person Company
(OPC) | Private Limited
Company | Public Limited
Company | |
| Registration
Requirement | Not required | Not mandatory | Registration must | Registration must | Registration must | Registration must |
| Registering Authority | No Registration Required | Registrar of Partnership | Registrar of Companies | Registrar of Companies | Registrar of Companies | Registrar of Companies |
| Suitable for | Small businesses in unorganised sectors | Small businesses in unorganised sectors | Small to Medium businesses in organised sectors | Small businesses in organised sectors | Start up, Growing and Medium size businesses in organised sectors | Medium to large businesses in organised sectors |
| Name Availability | Anything. However should not breach trademark or copyright | Anything. However should not breach trademark or copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright |
| Time required for
Setting-up and start of business | Instantly | Instantly | Instantly after setting-up, however incorporation may take 7-10 days | Instantly after incorporation however incorporation may take 7-10 days | Instantly after incorporation however incorporation may take 7-10 days | Instantly after incorporation however business can be started only after
securing Certificate of Commencement of Business after incorporation, which
put together may take 15-21 days |
| Investment
flexibility | Limited | Limited | Limited | Limited | Unlimited | Unlimited |
| FDI Permission | Restricted | Restricted | Flexible | Restricted | Flexible | Flexible |
| Legal Recognition | Not a separate legal entity | Semi-Separate legal entity | Separate Legal Entity | Separate Legal Entity | Separate Legal Entity | Separate Legal Entity |
| Liability Protection | Not Available | Not Available | Limited | Limited | Limited | Limited |
| Existence /
Continuity | Limited | Subjective | ||||
| Min./Max. Members /
Owners / Shareholders | Minimum: 1 | Minimum: 2 | Minimum: 2 | Minimum: 1 | Minimum: 2 | Minimum: 7 |
| Minimum Paid-up
Capital | Nil | Nil | Nil | Nil | ₹ 1 Lakh | ₹ 5 Lakh |
| Income Tax | At Slab Rates | At 30%+SC+Cess | At 30%+SC+Cess | At Slab Rates | At 30%+SC+Cess | At 30%+SC+Cess |
| Profit Distribution
after Tax | Exempt | Exempt | Exempt | Exempt | Taxable | Taxable |
| Statutory Compliances | Minimum | Moderate | Moderate | Moderate | High | High |
| Main applicable laws (This is indicative
list of laws, there could be other laws applicable to a peculiar business
activity / entity) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) |
| Licensing
Requirements (This is an indicative list of licenses. Some
other licenses may also be required depending on underlying business activity /
entity) | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License |
| Periodical
Compliances | Tax & Other Return | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns |
| Liquidation /
Dissolution | Easy | Easy | Some legal formalities | Some legal formalities | Moderate legal formalities | Moderate legal formalities |