Incorporation of Private Limited Company – FAQ’s

Friends, beginning a new firm as a lone entrepreneur is not a good idea in today's competitive business environment. Because the liability of a proprietorship firm owner is infinite, they also have difficulty acquiring finances and obtaining better human resources. Nowadays, young people choose to work for a corporation rather than for a sole proprietorship. Many people are also intending to establish a new firm, but they are unsure which business structure is best in the long run. In this blog, we'll go through some frequently asked questions regarding forming a private limited company, which are frequently asked by new business owners.

Which of the following business structures is the best: proprietorship, partnership, or private limited company?
Dear friends, each sort of business has its own set of advantages and disadvantages. The liability of the owner/partners in a proprietorship or partnership business is unlimited, whereas the liability of shareholders in a private limited company is restricted to their share capital. Furthermore, a private limited business is a legal entity unto itself.

Is it possible for a single person to form a Private Limited company?
A private limited corporation must be formed by at least two people. You can, however, form an OPC (One Person Company) that is recognized and registered with the MCA.

What documents must be filed in order to form a private limited company?
• First and foremost, we must obtain MCA clearance for the name.
• KYC Documents for Directors and Shareholders are required (PAN Card, Aadhar Card, Voter Id, Passport, Bank Statement)
• Photo of the Board of Directors and Shareholders
• Directors' and Shareholders' Digital Signatures
• Rent Agreement/Lease Deed/Electricity Bill for Proposed Company's Business Premises
• Shareholder declarations signed, etc.

Is the annual compliance in an OPC and a Private Limited Company the same?
In comparison to a Private Limited Company, OPC (One Person Company) compliances are considerably low.

I already own and operate M/s Indian Enterprises as a sole proprietorship. Is it feasible to form a private limited business having the same name as a public limited corporation?
In the event of a private limited corporation, we must first obtain MCA permission for the name. It is not feasible to form a private limited business with such a name if it is not approved.

What are the many types of compliances that a Private Limited Company has to deal with during the year?
A private limited business must comply with numerous regulations, including the following:
• Meetings of the Board of Directors should be held at regular intervals
• AGM/EGM Procedures
• Minutes are being prepared.
• Keeping accurate books of finances in accordance with accounting and auditing standard
• Annual reports (AOC-4, MGT-7/7A, etc.) must be filed with MCA.
• Director of KYC
• Filing of Income Tax Returns
• GST Return Submission
• Auditing

Some compliances are listed above, however there are many more that a corporation must follow. Some old compliances are withdrawn and new compliances are established on a regular basis. For so, we must keep ourselves up to date on a regular basis, as failing to do so would result in significant late fines.

I formed a Private Limited company with a friend a few years ago, however no MCA compliances or director KYC were completed for this company. Is it possible for me to become a director in a new company?
MCA deactivates your DIN number if you have not completed Director KYC. Furthermore, the old company's noncompliance has an impact on your profile. As a result, your appointment will be cancelled if prior non-compliances are not corrected.

If I form a private limited company, would the government provide any assistance (such as a subsidy or a rebate) to help me establish my business?
There is no such facility available. However, if you register your Private Limited company through Udyam Aadhar and Startup India (if eligible), you would be eligible for additional benefits such as lower income tax rates and other incentives that are not available to other businesses.

Is a statutory audit required in the case of a private limited company?
Yes, according to the Companies Act of 2013, a Private Limited company must have its books of accounts audited by a Chartered Accountant (CA) on an annual basis. Following the audit, you must submit your financial statements to MCA on a yearly basis. You must pay a late fee if you default.