Sole Proprietorship or Pvt Ltd. common doubts!!

This is a common doubt that most of fresh entrepreneurs have. I myself was very confused when I was starting dietz, but then I read a lot and finally concluded in favour of a Sole Proprietorship.

Sole Proprietorship (S.P) or Pvt. Ltd. here are some commin doubts along with their solutions :

* What will be the difference in registering as a Proprietorship and as a Private Limited Company?

ANS: You dont need to register a sole proprietorship, just get on with the business, all you need is the licenses, VAT etc (if at all) which are intrinsic to your business and you can do all those legalities by mentioning your company as a S.P. If you want to register a private company, hire the services of a reliable CA and he will help you out with the process, normally a CA will charge around 20-25k for this and around 10 will be charged by Registrar of Companies (if you register the company with minimum paid up capital of 1lac, it is the amount that you need to have in your bank account while going for registering process.) You also need to get the name registered first for starting a Pvt. Ltd company, which has to be approved by the ROC first.

* What is the difference in costs in starting a Proprietorship vs. a Private Ltd.?

Ans: There are no starting cost for a S.P, sparing the license fees and VAT etc. whereas you require a minimum of 1 lac rupees as a paid up capital, which is nothing but the amount of money that you need to have in your account/company account while registering the company. You can withdraw and use the money later on. You will also have to spend on licenses and VAT, etc still.

* Do I need to work with a CA or a lawyer for this issue? My product is in development stage and I don’t want to invest much money at this stage.

Ans: You dont need a CA or a lawyer for a S.P, if you need licenses then you have to get it from nagar nigam, for sales tax etc you might need CAs. If your product is in a development stage then spare yourself the horror of the procedures and develop the product first, atleast get on with the prototype, these formalities should not be your priority as of now.

* If there is a company by the same name that I want to use in a different country and in a different sector, can I use the name of that company?

Ans: You might if the company is not that prominent. but do you actually want to do that, I mean you cannot open Wal Mart technologies, I guess you have got what I am trying to say. But avoid this because one day you might want to take your company global and then you might end up in a legal broil, I know a friend who is facing this problem.
But in India you cannot use a name which is same or similar to already registered names. The ROC will reject the name all together.

If you are running low on funds then it is better that go for a S.P, converting it to a Pvt. Ltd is not that difficult, but the issue is that the name can be taken by any other organization, so simply get the name registered, which stays valid for 6 months, the cost for this is very less as compared to the registeration of company.

Consult a CA and he will guide you, you can talk to them they will elaborate the process further and the website www.mca.gov.in can be used for further legal requirements. Also you can check the name that you have thought on this website as well.

All the facts and figures are as per the Companies Act of 1956, the new bill is yet to be debated, it was scheduled for debate in the winter session but due to 26/11 it got overshadowed, rightly so. Another reason to curse terrorism.

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9 thoughts on “Sole Proprietorship or Pvt Ltd. common doubts!!

  1. To incorporate a pvt. ltd. hire a company secretary not a CA.. You may end up paying too much if you hire CA who outsources to CS.. Hire CS directly for incorporation.. You’ll save 20-25k.. In all i spent just 14000 for the whole process.. Try to find acquaintances.. Try not doing it yourself it is a waste of time and you may end up mis-doing it..

  2. If you are a small start up, as breakeven takes time, you need to efficiently & effectively use your money.

    Hence as a small start up instead of putting your effort in formation of a pvt Ltd entity the better option would be to go for S.P (if you are alone) or Partnership firm (few people involved and it just needs an agreement typed and signed among the partners). I did not find partnership firm in your discussion and hence thought of bring it up.

  3. DEAR SIR, I FOUND YOUR REPLYS VERY HELPFUL BUT FOR SOME DOUBTS . IN MY CASE I HAVE INVESTED RS. 3 LAKHS FOR FORMING A SERVICE COMPANY. I HAVE MY WORKING PARTNERS WHO HAVE NO BIG MONEY TO PAY BUT ARE PREPARED TO WORK AND DEVELOP THE COMPANY. I HAVE THAOUGTS TO MAKE THIS COMPANY FULLY UNDER MYSELF BUT MY WORING PARTNERS ( IF SO CALLED ) WILL GET A PRORATA INCOME EVERY MONTH AND WILL BE RESPONSIBLE FOR THEIR OWN TAX PAYMENTS . CAN U SUGGEST ME A GOOD AND SAFE AGREEMENT
    SO THAT THERE WILL BE NO DISPUTES LATER AND I WILL ALWAYS HAVE THE UPPERHAND FOR THE YEARS TO COME . ALSO LET ME KNOW REGARDING CURRENT BANK ACCOUNT OPENING AND SERVICE TAX . HOW DO I GO ABOUT THIS AND THE CORRECT WAYS . KINDLY ADVICE. THANKS SUBBU

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