For startups and small businesses, private limited company registration is advised.
A Private Limited Company registration is the best form of company for a startup, especially one which is growth-oriented. The reasons for this are many like,
- Usually, startups have more than one founder so it is difficult to be a One Person Company. A private limited company can have many directors and choosing the right directors is a very important task.
- They also aim at getting cash from angel investors and Venture Capitalists (VC’s) from the further issue of shares.
- Employee stock ownership plan (ESOP) in the private companies enables employees to hold a stake in the startup.
- Moreover, a minimum share capital requirement of Rs 1 Lakh for incorporation has been removed.
- The government has offered various exemptions including a tax holiday. This makes a private limited company form more suitable. Certain conditions are to be met by eligible startups to be entitled to a tax holiday which extends to 3 blocks out of the initial 5 years.
- To claim eligibility, the company must be registered between April 1, 2016- 31 March 2019, and its annual turnover must not exceed Rs 25 crore and it must have obtained a certificate of eligible business from the Inter-Ministerial Board.
Boost on registration of private limited companies
The flourishing startup ecosystem seems to have boosted the growth of private companies. During the year 2015-16, as many as 60,414 private limited companies with an aggregate authorized capital of Rs 10,845 crore were registered (statistics are up to December 31) – a hike of 36% over the previous corresponding period as per MCA report.