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Jun 26
Facts and Myths about Private Limited Companies
Posted by:MyEfilings
Facts and Myths about Private Limited Companies

We are proud that India is the second fastest growing economy in the World today and all set to become the fastest growing economy very shortly. We must also not forget that India is second only to Indonesia in terms of ratio of unregistered business to registered business. For every 127 unregistered businesses in India there is only one registered business. Majority of Indian businesses run as Proprietorship or Partnership Firms. Despite of having new options like Limited Liability Partnership and One Person Company besides Private Limited Company, the adoption rate is very slow. One of the main reasons for this may be myths about maintenance of Private Limited Companies or LLPs. In this article we will discuss some popular facts and myths about Private Limited Companies.

1. Incorporation and Maintenance of Private Limited Company is a Costly affair.

Gone are the days when Professionals used to charge Rs. 35000 to Rs. 50000 for incorporation of a Private Limited Company. Now a Private Limited Company can be incorporated for as low as Rs. 15999/- all inclusive and a Limited Liability Partnership (LLP) can be incorporated for as low as Rs. 7999/- all inclusive.

Further, for maintenance of a Private Limited Company, charges just Rs.11999/- all inclusive which includes normal filing fees for Annual Returns, Balance Sheets, drafting of all resolutions, Directors Report, notices etc.

2. Shareholders and Directors meetings are required at regular intervals

Yes, minimum one meeting of Board of Directors is required in every three months. Annual General Meeting is compulsory once in every year. If any special resolution is to be passed, an Extraordinary General Meeting is also required.

All the above meetings are related to business only and can be done in regular course of business. Generally these meetings do not take more than few minutes of time. Extra time and efforts are not required for all above things.

3. Audit is compulsory in Private Limited Company

Even the Proprietorship and Partnership Firms are required to Audit the books of accounts if their turnover exceeds certain limits. The Proprietorship and Partnership Firm are also required to audit the Books of Accounts if income from businesses covered under Sections 44AD, 44AE, 44AF, 44BB or 44BBB are lower than the deemed profit. The Private Limited Company is required to audit its Books of Accounts every year, irrespective of turnover or profit.

4. Tax Rates of Private Limited Company are higher

Income Tax rates for Private Limited and Partnership Firm for the Financial Year 2015-16 are as given below:

Private Limited Company

Partnership Firm

Income Tax : 

30% of taxable income


Income Tax :

30% of taxable income

Surcharge :

7% of Income Tax if taxable income exceeds 1 crore, (marginal relief in surcharge applicable)

12% of Income Tax if taxable income exceeds 10 crores

Surcharge :

12% of Income Tax, where taxable income exceeds 1 crore (marginal relief in surcharge applicable)

Education Cess :

3% of total Income Tax and Surcharge

Education Cess :

3% of total Income and Surcharge

It is very clear from the above table that there is not much difference in the Income Tax Rates of Private Limited Company and Partnership Firm. If we compare it with the Proprietorship, the Proprietorship is taxed as an Individual. The tax rates for Individuals for F. Y. 2015-16 are 10% for income of 2.5 lakhs to 5 lakhs, 20% for 5 lakhs to 10 lakhs and 30% for income above 10 lakhs. Savings of Income Tax would be negligible for small and medium sized businesses running in Proprietorship as against benefits of a Private Limited.

Click here for more information on Income Tax Rates in India.

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