There are many myths which young entrepreneurs think about registering a private limited company. The article will clear up some common misconceptions which I pointed out while making conversation with many entrepreneurs, readers can add more into it:
1. Private Limited Company can be registered in only Commercial Places.
Many entrepreneurs' think that private limited can't be registered in residential premises, which is not the fact. Provisions of companies Act, 2013 erstwhile companies act, 1956 apply to Private limited companies and there is no restriction in companies act for registration of companies in residential areas. Provided that Company should affix its name, and the address of its registered office, in legible letters outside of every office or place in which its business is carried on.
But, yes many State Sales tax laws usually prescribes the traders or manufactures to have place of business in commercial areas. And that to when you are liable to register under that particular sales tax law. We will discuss the liability of sales tax later in this article.
Moreover traders and manufactures can have a separate place of business other than the registered office of the company for registration under sales tax laws.
FACT: You can register your company in your residential house also.
2. Private Limited Company to take Service Tax Registration
Many Startups think that every private limited has to take service tax registration, which is not the fact.Only a person who provides a Taxable service is mandatorily required to apply for service tax registration and only if the value of the services provided by him in a particular financial year exceeds Rs. 9 lakh.
Moreover, small scale service provider has the option of availing service tax exemption. Even if the service provider has taken service tax registration they are not required to charge or pay any service tax if aggregate turnover value of taxable services does not exceed Rs 10 Lakhs in a financial year.
FACT: It is not only for private limited company , but if any service provider is an proprietorship concern, partnership firm they are also required to take registration under service tax if aggregate turnover value of taxable services in a financial year exceeds Rs. 9 lakh.
3. Private Limited Company to take Sales Tax (TIN) Registration
Many Startups think that every private limited has to take Sales tax registration, which is not the fact.Sales tax registration/TIN Registration/VAT Registration is applicable only to traders or manufacturer who sells, purchases or manufactures any goods. Dealer who sells or purchases any goods in the course of inter-State trade or commerce or in the course of export of the goods out of, or the import of the goods into, the territory of India are also liable to be registered under state sales tax law in addition to registration under Central Sales Tax Act (CST).
Sales tax Act is state matter and regulated by respective state sales tax law. Further Turnover limit for registration has been specified in different state sales tax law and differ from state to state. For example in Delhi any trader whose turnover exceeds Rs. 20,00,000 is only required to be registered under Delhi Sales Tax Act /Delhi value Added Tax Act (DVAT),or any dealer in Delhi who sells or purchases any goods in the course of inter-State trade or commerce or in the course of export of the goods out of, or the import of the goods into, the territory of India is required to be registered under Delhi Sales Tax Act.
FACT: It is not only for private limited company , but if any Dealer is an proprietorship concern, partnership firm they are also required to take registration under sales tax act if they meet the criteria discussed above.
4. Private Limited Company should take registration under PF and ESIC
Many Startups think that every private limited has to take Employees' Provident Fund and Employee State Insurance Corporation, which is not the fact. Registration under Employees' Provident Fund is applicable to establishment:
- Employing 20 or more persons.
- Cinema Theatres employing 5 or more persons.
The Registration under Employees' Provident Fund does not apply to:
- The co-operative societies employing less than 50 persons and working without the aid of power.
Once Registration is taken, Employees' Provident Fund Act shall apply and continue even if the number of employees falls below 20 at a later date.
Registration under Employee State Insurance Corporation (ESIC) is applicable to:
- To non-seasonal factories employing 10 or more persons.
- The Registration has been extended to shops, hotels, restaurants, cinemas including preview theatres, road-motor transport undertakings and newspaper establishments employing 20 or more persons.
- Private Medical and Educational institutions employing 20 or more persons in certain States/UTs.
"Once Registration is taken, Employees' Provident Fund Actshall apply and continue even if the number of employees falls below 20 or 10 as the case may be at a later date."
FACT: It is not only for private limited company , but if any establishment is an proprietorship concern, partnership firm they are also required to take registration under PF and ESIC Act if they meet the criteria discussed above.
5. Private Limited Company to have Tax Deduction and Collection Account Number (TAN ) Number
Many Startups think that every private limited has to take Tax Deduction and Collection Account Number (TAN) Number, which is not the fact.
Tax Deduction and Collection Account Number (TAN) Number is required to be taken only by the "person" who is liable to deduct Tax Deducted at Source (TDS)
As per Section 2(31) of Income Tax Act, 1961, the term "person" includes:
- an individual,
- a Hindu undivided family,
- a company,
- a firm,
- an association of persons or a body of individuals, whether incorporated or not,
- a local authority, and
- every artificial juridical person, not falling within any of the preceding sub-clauses.
FACT: It is not only for private limited company , but an individual,a Hindu undivided family,a firm,an association of persons or a body of individuals, whether incorporated or not are also required to take Tax Deduction and Collection Account Number (TAN ) Number if they liable to deduct Tax Deducted at Source (TDS).
6. Private limited Company to comply with Every Audit Requirements
Many Startups think that every private limited has to comply with every Audit Requirements, which is also not the fact.
Income-tax Act, 1961 mandates a "person" to get his books of accounts audited if he is carrying on a business and his total turnover exceeds Two crore rupees in a financial year. However, in the case of a professional, he is required to get his books of accounts audited if his total receipts exceed fifty lakh rupees in a financial year. This Audit under Income-tax Actis called TAX AUDIT which is different from Statutory Audit provided under Companies Act. "This Audit is called Statutory Audit."
Companies act, 2013 erstwhile companies act, 1956 provides every companies incorporated under companies actare required to appoint an individual or a firm of Chartered Accountant in Practice as an auditor of the company. The auditor shall make a report to the members/shareholders of the company on the accounts examined by him and on every financial statement which are required to be maintained under Companies act.
FACT: It is not only for private limited company, but an individual, a Hindu undivided family,a firm,an association of persons or a body of individuals, whether incorporated or not are also required to get TAX AUDIT done as per Income-tax Act, 1961.
Conclusion: Private Limited companies in India are incorporated under Companies Act, 2013 and all provisions of Companies Act, 2013 are applicable to such companies. Therefore Private Limited companies are required to comply with the provisions of Companies Act. Private Limited companies are required to comply and take registrations in other acts only and only if they meet the criteria mentioned in that particular act.
Some of the mandatory compliances of Private Limited companies are given below. The list is inclusive and not exhaustive:
- Holding Board Meetings and maintaining of Minutes of such meeting.
- Holding Annual General Meeting and maintaining of Minutes of such meeting
- Appointment ofStatutory Auditor.
- Audit of Books of Accounts by Statutory Auditor.
- Filing of Annual Return
- Filing of Financial Statements annually i.e. Balance sheet, profile and loss accounts along with notice of Annual General Meeting and Director's Report.
- Filing of Income Tax Return.
About the author: Satyendra Kumar Mishra
Satyendra Kumar Mishra is the founder and CEO of EmpressLegal.com which was founded with the singular objective of offerings the highest quality corporate and incorporation services to its clients all over the globe. Since its foundation, EmpressaLegal.com has helped entrepreneurs across India to incorporate their businesses in a fast and secure manner.