If the Company wants to enjoy the benefits of a startup, it is necessary to register as a Private Limited Company or a limited liability partnership (LLP). There are some norms for startups:

  • The startup is defined as an individual company working towards deployment, development, commercialization of new process and products or services whose annual turnover should not exceed 25 crores as per Indian currency value in any of the previous years and it should be incorporated or registered in India not prior to five years.
  • If the startup has obtained certification from Inter-Ministerial board, then it is eligible for tax benefits.
  • The startup should not be formed by reconstruction, revamping existing business and splitting the existing company.
  • When the startup exceeds 25 crores in the previous years or if it has completed 5 years of existence from the date of incorporation or registration, then the entity is ceased out from startup benefits.
  • To run a company without any legal problem the company should be registered first under the ministry of corporate affairs.

The advantages of registering the business as a private limited company are:

Limited liability:

It means limited exposure to financial risk meets out by the company investors. Limited liability also states that limited shareholders’ liability than the capital amount invested in the company. The investor won’t be liable for any liability when it exceeds the capital amount.

Exits and Transfers:

It is easier to sell limited companies when compared to partnership firms. Equity or preferred shares are easily sold out without affecting the company’s activities.

Business Continuity

Perpetual succession is an add-on to Private Limited companies.  Perpetual succession means the company does not bother about the shareholder’s presence and absence. It is still to be in the existence. The company will never be affected by the boycott of any shareholders or transferring of shares to another person. In private limited company one shareholder may transfer his shares to another or others, but there will not be any trouble in the company existence, whereas in a partnership firm, partnership dissolution will exist if there is a change in the membership.

Directors and salaries:

Salary to the directors does not have any maximum limit.

Fund Raising

Most of the banks come forward to lend themselves to limited companies because the bankers can use the company assets as a security for the loan. Private equity firms take a stake in the company while investing. Usually, banks and private equity funds incorporate with private limited companies and other business organizations for the said reason.

The Benefits of registering a Company as the Private limited:

  • The company will have support from the Government
  • Tax exempted for three years
  • Cost of compliance is low
  • Incubator setup is availed
  • Exiting norms are faster to wind up the startup
  • Capital gain tax exemption

Charted Accountant and Company secretary services are mandated by the Indian law for signing the documents while forming a Private limited company. Many service providers are there who connect the company people directly to the CA and CS from their back-ends.