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Benefits Of Forming Private Limited Company & CFSS

Private Limited Company is a very old concept for a privately held SSI & MSME business entities, almost 95 percent of the companies incorporated in India are registered as Private Limited Companies. As taxation for companies are lucrative, MSME & SSI sector is turning towards structured way of doing business by converting themselves into Private Companies.

Let’s now deep dive into the topic and try to understand the advantages private limited companies enjoy:

Members / Directors / Shareholders:

At least 2 members are required to form a company. Don’t you think it’s always best to have someone to support you. This person may be able to help you to add more perspectives to the business, help the idea expand – probably in the right direction, may offer you exactly what you lack – place, people, money, smartness or the much needed business network. The contacts brought by this person will certainly help you to reach more than your Contact List – be it for ideas or for FUNDS – you never know!

Separate Legal Entity :

A private limited company separates Management and Ownership and thus, Management is responsible for the company’s success as well as failure. 

Limited Liability:

Since a company is a separate legal entity, member or shareholder won’t be personally liable for any debt or loan incurred by the company. The liability of each member or shareholders is limited to the contribution made by them.

Perpetual succession :

Since a company is a separate legal entity, in the eyes of law the company keeps on existing even after death, insolvency or bankruptcy of any of its member. Means, If you have a proprietary business or a partnership business, you and your business are one and the same. There’s no difference. You will be liable for all the acts of your business. Registering your business as a company gives the business a different legal status. Hence the life of the Company is not dependent on the life of its founders or its members. Even if the members, for that matter even all members, become bankrupt/insolvent, the company remains unaffected.

Share Capital:

Share capital simply means the amount brought in by the promoter to start the business. It can be in the form of kind as well. There is no minimum capital required to incorporate a private limited company as per Companies Act 2013. If you think, your business doesn’t need much capital or if you are getting funded from an outside source then you can even choose to keep a capital as low as Rs. 1000. To remember, this is as good as the amount you are investing in your sole proprietorship business from your own savings. 

Name:

The name you select for your business entity is not just a business name but an identity of your company, for which you get a company identification number (CIN). However, you can hold several trademarks for different products/services under your company name.

Investment :

A company being a legal person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim on the property of the company as long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Taxation:

Companies are taxed at a lower rate compared to the other forms of business and hence its lucrative. The current income tax rates for domestic companies is as below:

Note: Education cess and surcharge will be extra, considering the nature and turnover of company.

Companies Fresh Start Scheme,2020:

Recently Ministry of Corporate Affairs has announced a scheme to enable the companies registered in India to make a fresh start on a clean slate , by incorporating certain alleviative measures for the benefit of all the companies.

MCA has introduced a scheme namely “Companies Fresh Start Scheme, 2020 ( CFSS-2020) vide General Circular No.12/2020 dated 30.03.2020 which is applicable to all defaulting companies, :-

  1. All necessary documents including annual documents of the company can be filed with normal fees only, as additional fees are waived off.
  2. Inactive company can also take status of “Dormant Company u/s 455” by filing simple application in form MSC-1 or can also apply for striking off the name by filing e-form STK-2 with normal fees.
  3. The Scheme grants immunity to the companies in relation to proceeding for imposing an additional penalty. This is only against delayed filings in MCA registry and it doesn’t provide immunity to any proceedings involving interests of shareholders or any other person qua the company or its Directors or KMP. It further clarifies that where penalties were imposed by an adjudicating officer due to delayed filing, and no appeal has been made before the Regional Director then-
    1. If last date for filing the appeal falls between March 01 to May 31, 2020, additional 120 days shall be allowed for filing the appeal, and
    1. During this additional period no prosecution shall be initiated against the company or its officers, insofar as it relates to delay in filing.

CFSS 2020 will not apply in the following cases:

  • Where action for striking-off has already been initiated by the Designated Authority or STK-2 for strike off of Company with ROC has been filed by the companies;
  • Companies which have amalgamated;
  • Companies which has already filed application for obtaining dormant status;
  • To Vanishing Companies;
  • Where any increase in authorized capital (Form SH-7) and all charge related documents (CHG-1, CHG-4, CHG-8 and CHG-9);
  • In the matter of any appeal pending before the court of law and in case of management disputes of the company pending before any court of law or tribunal;
  • In case any court has ordered conviction in any matter or an order imposing penalty has been passed by an adjudicating authority under the Act and no appeal has been preferred.

All the recent changes in taxation and other alleviative measures given by Government will definitely boost the corporate sector and businessmen should take the advantage of this scheme as this is valid only till 30.09.2020.

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