Don't Create a Private Limited | Business | Sarthak Ahuja

Please do not make the mistake of starting your business as a private limited company...

👉🏼 1/ Higher Taxation

Even though on the face of it a private limited company has to pay 25% tax on profits, while a partnership or LLP pays 30%... but the effective taxation on a private limited is much higher.

Because in a partnership or LLP, you pay 30% tax on the profits and then you can distribute those profits tax free to the partners who can use it to invest in any asset in their personal name.

But in a private limited, if the shareholders withdraw the tax paid profits in their individual names as dividends, that amount is taxed again in their hands at slab rates, which means shareholders end up paying 50% of the profit in taxes if they withdraw the money in the personal name to buy assets like a house or some other investment.

👉🏼 2/ Competitors can access your Financial Statements

A private limited has to file its audited financials on the MCA portal every year, which any of your competitors, relatives, friends can download by paying Rs 100 and know how much money you are making.

Not everyone is comfortable sharing this information.

This problem exists in an LLP too, but not in a partnership.

👉🏼 3/ Higher Compliance Cost

You end up paying easily Rs 50k extra annually on an average for maintaining a private limited - something that is cheaper in a partnership or LLP.

👉🏼 So here’s what I recommend:

- If you are testing the waters in entrepreneurship as a side hustle, do it as a proprietor.
- If you are working with a co-founder and want to separate the entity from your personal name, do it as a simple partnership firm
- If you want the benefit of limited liability, think of an LLP
- Only go for a private limited when you know you would require external funding from investors to grow your business at some stage

If you are unsure if you would be taking funding or not, just start as a partnership firm or LLP, and convert to a private limited when you are certain you need external investors.
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A Chartered Accountant with about 10 years of experience in areas of Tax Advisory, Startup Consulting, Fundraising, Audits, Deal Advisory, Business Modelling and contract CFO services.
Winner of the ISB Young Leader Award 2017 and the Best All Rounder, PGP Class of '17, Sarthak has also been published about in the leading financial newspapers such as The Financial Express as possibly the youngest Indian to have completed the courses of CA, CS and CMA along with a graduate degree in Financial & Investment Analysis from University of Delhi, all by the age of 23 years

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