When one contemplates starting up his/her own business, we tend to choose either proprietorship or partnership firm as a form of company registration. This tendency to evade choosing a Private Limited Company as a form of business, especially amongst startups, is due to certain notions and myths that surround the private limited company. These myths are passed over from one generation to another that is not relevant to the current ecosystem. Hence, it is wise and prudent to keep oneself updated from time to time in order to make well informed and wise business decisions. We have tried to bust such myths surrounding Private Limited Company in this blog hoping that they will prove to be useful and helpful for you. Let us begin unveiling them one by one:
MYTH# 1: Private Limited Company is expensive
A few years ago, incorporation of a Private Limited Company used to be expensive with the incorporation charges reaching the limit of Rs. 50,000 or more. This used to make one think that incorporating a Private Limited Company would burn a hole in his/her pocket. Now in the present competitive ecosystem, you can register a Private Limited Company for as low as Rs. 15,000/ through setindiabiz.com.
MYTH# 2: Shareholders meetings are required often
As per the Companies Act, 2013 it is mandatory for a Private Limited Company to hold an Annual General Meeting. Board meetings are necessary only when special resolutions need to be passed. However, Conducting neither of them is a time-consuming affair. Meetings pertaining to the maintenance of legal compliances of a Private Limited Company is a matter of minutes and is not a tedious or hefty task to perform. Hence, whether it is Annual General Meeting or Board Meetings, it should not come in the way of choosing a private limited company as a form of doing business. Unveiling the Myths Surrounding Private Limited Company
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MYTH#3: Partnership and Proprietorship have a lower tax rate
As per the Finance Act, 2016 in the case of partnership firm and Limited Liability partnership tax rate is 30% while in the case of the domestic company following tax rates are applicable:
- 25% tax rate: It is applicable only in case of the newly set up domestic company engaged solely in the business of Manufacture or product of article or thing u/s 115BA
- 29% tax rate: It is applicable to companies whose turnover/gross receipts in the previous year 2014-15 does not exceed 5 crore
- 30% if not covered by above 2 points
Hence, in view of the aforementioned facts, it will be prudent to incorporate a company as a Private Limited Company rather than a partnership firm. Also, Proprietorships are taxed similarly to individuals in India.
MYTH#4: Proprietorship and Partnership do not need an audit
It is a misconception that Proprietorship and Partnership firms do not need audit rather if certain criteria are met they are required to furnish audit reports. In case their annual turnover exceeds Rs. 2 crores (w.e.f FY 2016 -17) proprietorship and partnership firms are required to file the tax audit reports. It is also the same in the case if the proprietorship doesn’t achieve a profit of 8% during the financial year. However, in the case of the Private limited company irrespective of its profitability or sales turnover, the company’s financial statements are required to be audited every financial year. Unveiling the Myths Surrounding Private Limited Company