company formation/registration in kerala

Types of Companies and firms in India:

1. Private Limited Companies

2. Public Limited Companies

3. One Person Company (OPC)

4. Limited Liability Partnership (LLP)

5. Sole Proprietorship

6. Partnership Firm

7. Section 8 Company

8. Hindu Undivided Family (HUF)

9. Nidhi Company

10. Producer Company

Different types of companies and firms are recognized under Indian Laws, namely Private Limited Company, Public Company, Sole Proprietorship, One Person Company, Partnership, and Limited Liability Partnership (LLP). A Private Limited company is the most preferred form of business. A private company can be formed by two people.

There are Various Forms of Firms, Some of the Company Types in India:

1. Private Ltd Company

  • Confines the privilege of the shareholders to exchange their shares.
  • Has at least 2 and is the most extreme of 50 individuals.
  • Does not welcome open to subscribe to its offer capital
  • Must have a base paid-up capital of Rs. 1 lakh or a higher sum which may be endorsed every now and then.

A Private Limited Company can be of three types:

  1. a company limited by shares
  2. a company limited by guarantee
  3. an unlimited company

company formation in India

Advantages and disadvantages of a private limited company

Private limited companies offer a number of important advantages compared to businesses operating as sole traders.

a.   Reduced risk of personal liability

As a sole trader, you are personally liable for all the debts and liabilities of your business. In a private limited company, you and any other shareholders are only liable for debts up to the value of your shares. That reduces the risk of having your personal assets seized to pay for the debts of the business if it fails.

  • Higher business profile

A private limited company is perceived as more substantial than businesses run by a sole trader. When customers place orders or award contracts, they want to be confident that the supplier has the resources to provide a reliable service. The perception is also shared by investors, so it may be easier to attract funding as a limited company.

  • Lower taxation

Sole traders pay income tax and National Insurance contributions on the profits of the business through an annual self-assessment tax return. The rate of income tax and National Insurance contributions is equivalent to that of a private individual and includes the same personal allowances.

 A limited company pays Corporation Tax, which is based on income minus allowable business expenditure.

However, Corporation Tax rates for smaller businesses are lower than the equivalent income tax rates and companies can claim a wider range of allowable expenditure. Although you will also pay personal income tax and National Insurance contributions as a director or owner of a limited company, you have greater flexibility in the way you pay yourself, which can lead to savings on your personal tax bill.

   d. Easier access to growth funds

As we mentioned earlier, private limited companies have access to a wider range of funds for growth, including bank loans, venture capital and crowdfunding because investors see limited companies as a lower risk. You can also raise capital by selling shares in your business, although you cannot offer them for public sale.

e.   Protected business name

When you register your business name with Companies House, the name is protected and cannot be used by any other business. Anyone wishing to register a name must check that it is available. If Companies House recognise a matching name or a name that is very similar, they will advise the business and refuse to grant permission. This level of protection makes it difficult for other companies offering copies of your products cannot ‘pass-off’ their products as genuine.

  • Personal income flexibility

If you are an owner or director of a limited private company, you can pay yourself a combination of salary and dividends. As dividends are taxed at a lower rate, this will reduce your tax bill and provide a more tax efficient method of remuneration compared with salary alone.

There are also other ways to take money out of the business as a director, including bonus payments, pension contributions, directors’ loans and private investments. These offer various degrees of tax efficiency. Sole traders do not have the same flexibility. They take income from the profits of the business and the income is taxed at standard personal income rates.

Disadvantages of a private limited company

While a private limited company offers many important advantages, there are also a number of disadvantages.

a.   Higher set-up costs

When you set up a private limited company, you must follow a number of procedures that can be time-consuming and costly. You must register your business with Companies House, which is not expensive, but only after selecting and registering a business name, appointing directors, nominating shareholders and preparing legally required documents, including Memorandum of Association and Articles of Association. Sole traders, in contrast, only have to register with HMRC for income tax purposes.

b.   Greater administrative burden

Private limited companies have to maintain three types of legally required records:

  • Records of company activities, such as lists of directors, shareholders and voting decisions.
  • Financial records covering all transactions.
  • Records of persons of significant control.

You also have to comply with any relevant laws, rules or regulations, maintain accurate business records, file accounts and pay Corporation Tax. If the burden is too high, you may have to consider appointing a Company Secretary to handle those tasks, adding to business costs.

c.   Public scrutiny

Your business records held at Companies House are open to inspection by competitors, investors and other third parties. That makes it difficult to maintain confidentiality about turnover, ownership or significant business changes, which can provide useful information for your competitors.

d.   Financial reporting

You must maintain accurate financial records and file them with HMRC and Companies House following the end of the financial year. That means preparing and submitting a full set or an abbreviated set of statutory accounts in accordance with recognised accounting practice.

company registration in kerala

2. Public Ltd Company

  • It permits the shareholders to exchange their shares.
  • Has at least 7 individuals, and for most extremes, there is no restriction.
  • It welcomes the overall population to subscribe to its shares.
  • Must have a base paid-up capital of Rs 5 lakh or such a higher sum as may be recommended every once in a while.

3. Unlimited Company

An unlimited Company is a type of business association under which the risk of every one of its individuals is unlimited. The individual resources of the individuals can be utilized to settle their obligations. It can whenever re-register as a constrained organization under segment 32 of the Companies Act.

4. Sole Proprietorship

Sole proprietorship is a type of business substance where a solitary individual handles the whole business association. He is the sole beneficiary of all benefits and conveyor of all losses. There is no different law that administers sole proprietorship.

company formation in kerala

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