Disadvantages of operating as a limited company
- Must incorporate the company with Companies House.
- Generally, there are more costs to set up.
- One cannot be a director of a company if he is disqualified director or un-discharged bankrupt.
- There are certain restrictions with regard to the company name.
There are also some disadvantages:
- Private companies are subject to many legal requirements.
- They are more difficult and expensive to register compared to a Sole Proprietorship.
- At least one director is required.
- Shares may not be offered to the public and cannot be listed on the stock exchange.
A private limited company has one or more members, also called shareholders or owners, who buy in through private sales. Directors are company employees who keep up with all administrative tasks and tax filings but do not need to be shareholders.
Disadvantages of a company include that:
- the company can be expensive to establish, maintain and wind up.
- the reporting requirements can be complex.
- your financial affairs are public.
- if directors fail to meet their legal obligations, they may be held personally liable for the company's debts.
There are many benefits to being a sole trader in a proprietorship and having no compliances and obligations. However, private limited companies have smooth structure of operation and separation of both assets as well identity. Therefore, private limited companies are proving to be better in the long run.
It is easier for private companies to invest in long-term growth strategies. Obviously the company can develop short-term goals but it can freely put efforts into R&D and investments that might not pay off instantly. The private company has more freedom and flexibility when it comes to corporate governance.
Such company has to compulsorily convert to a private or public limited company within a period of 6 months from the date when the paid-up share capital exceeded 50 lakhs rupees or the last date of the related period in which the average annual turnover surpasses 2 Crore rupees.
Required Documents for Registration of Private Limited Company
- PAN.
- Govt ID proof - Voters' ID or passport or driver's license.
- Bank statement.
- Utility bills either mobile or gas or electricity.
- Passport size photograph.
- Specimen signature - Director's signature on a blank document.
How to register a Pvt Ltd Company
- #1: Apply for DSC (Digital Signature Certificate)
- #2: Apply for the DIN (Director Identification Number)
- #3: Apply for the name availability.
- #4: File the EMoa and EAOA to register the private limited company.
- #5: Apply for the PAN and TAN of the company.
Application feesRs 1,000 in case of OPC's and Small Companies, and Rs 2000 in case of other companies. Rs 2500 in case of OPC's and Small Companies, and Rs 5,000 in case of other companies. No fee for OPC's and Small Companies, and Rs 5,000 in case of other companies.
Steps to Check Company Registration Status
- Step 1: Go to the MCA website.
- Step 2: Go to the 'MCA Services' tab. In the drop-down click on 'View Company/LLP Master Data'.
- Step 3: Enter the companies CIN. Enter the captcha code. Click on 'Submit'.
The Cost of Incorporation / Registration of Pvt Ltd Company would vary from INR 6,000/- to INR 30,000/- depending upon the No. of Directors, No. of members, authorized share capital and Professional fees. Professional fees may depend upon the complexity of the task.
Four major steps to register a company/ startup in India:
- Step 1: Acquire Digital Signature Certificate (DSC)
- Step 2: Acquire Director Identification Number (DIN)
- Step 3: Create an account on MCA portal- New user registration @ mca.gov.in.
- Step 4: Incorporate or Apply for the company to be registered.
Abbreviations
| Country/Region | Business form | Abbreviation(s) |
|---|
| United States | limited liability company (can also be publicly traded but most are not publicly traded) | LLC |
| privately held company (most but not all are limited liability companies) | PVT, PHC |
| United Kingdom | private company limited by shares | Ltd. |
| Ireland |
In companies, profit is distributed in the name of Dividends based on the percentage of Shares held by them. To share profits means sharing dividend. It will be decided based on the % of the shareholding each of you holds.
Take Out a Director's SalarySince company directors are technically employees of a limited company, they too are able to receive a salary. Therefore, the company has to register with HMRC for PAYE and must pay Employer's National Insurance Contributions (NIC).
Profits are placed in the corporation's retained earnings account, but the corporation is not required to distribute those profits to stockholders. The decision to distribute profits is made by the corporation's board of directors.
There are two ways to make money from owning shares of stock: dividends and capital appreciation. Dividends are cash distributions of company profits. Capital appreciation is the increase in the share price itself. If you sell a share to someone for $10, and the stock is later worth $11, the shareholder has made $1.
One of the biggest advantages for many is that running your business as a limited company can enable you to legitimately pay less personal tax than a sole trader. Running your business as a limited company could therefore help you to take home more of your earnings.
The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. A Limited Liability Partnership means a business where minimum two members are required and there is no limit on the maximum number of members. The liability of the members of an LLP is limited.
Limited companies pay Corporation Tax on their profits (minus any reliefs they can claim). Currently, the rate is 19% and plans to cut this to 17% have been put on hold. As an employee, you pay personal tax and NICs through the company's PAYE (i.e. pay as you earn) scheme.
The advantages and disadvantages of a limited company
- Tax efficient.
- Limited liability.
- Separate entity.
- Professional status.
- Company pension.
- Maximising tax-free income.
- Complicated to set up.
- Complex accounts.
