WHY DO SMALL INDUSTRIES REMAIN SMALL? — PART 6
Minish Umrani (Industrial Consultant)
Mobile: 9822390363 | minish@leansigmasolutions.in
PRIVATE LIMITED?
A company being “Private Limited” gives it a certain prestige. It may also appear to improve the chances of attracting good employees. I have noticed that many small entrepreneurs hold this belief.
There are large, privately owned companies that have built major brands. For example, I found these two companies on the internet. I cannot independently confirm all the information, but look at their turnover:
Koch Industries
• Sector: Manufacturing, trading and investments
• Approximate turnover: $125 billion (2022)
Mars Inc.
• Sector: Food products, including chocolates and pet food
• Approximate turnover: $45 billion (2022)
The point is simple: just because your turnover is increasing does not mean you need to immediately convert your business into a Private Limited company.
Converting a ₹2–5 crore business into a Private Limited company merely for prestige can be like “Sonubai with a garland of glass bangles”—a Marathi expression meaning that one may be creating unnecessary trouble without gaining real substance.
It is also expensive.
In India, there is no annual turnover ceiling for a sole proprietorship as such. A sole proprietorship is a simple structure in which the business and the owner are essentially the same person.
However, as turnover grows and the business becomes larger, an entrepreneur may need to consider a more structured form such as a Private Limited company or LLP.
In many cases, an LLP can be more convenient than a Private Limited company.
The reason is that as a business becomes larger, management, financial planning and responsibility become more complex.
A Private Limited or LLP structure can provide better management systems, risk control and certain tax/regulatory advantages.
At the same time, a sole proprietorship can continue at any turnover level as long as the applicable tax and regulatory requirements are met. GST registration and other tax compliances, for example, must be followed where applicable.
You already comply with these requirements.
So if your turnover is ₹4 crore, ₹5 crore or even ₹10 crore, there may be no compelling reason to convert merely for prestige.
But once you get caught up in false prestige, you start the conversion—and then every year you need a Company Secretary and additional compliance.
Some of the major annual documents and compliances for a Private Limited company include:
1. Annual General Meeting (AGM) minutes
• Maintained as part of the company's statutory records.
2. Form AOC-4
• Authority: ROC (Registrar of Companies)
• Filing of financial statements and annual report.
3. Form MGT-7
• Authority: ROC
• Filing of annual return.
4. Form ADT-1
• Authority: ROC
• Appointment of auditor.
5. Income Tax Return (ITR)
• Authority: Income Tax Department
• Annual tax return filing.
6. Company Law Compliance Certificate
• Authority: ROC
• Compliance requirements depend on the company's paid-up share capital and turnover.
7. Form DIR-3 KYC
• Authority: ROC
• Updating directors' KYC details.
8. GST Returns, where applicable
• Authority: GST Department
• Monthly/quarterly/annual GST filings as applicable.
Naturally, preparing and filing all these documents can be complicated for a small company.
Not only small companies but large companies also appoint Company Secretaries for this work. And, of course, that comes at a cost.
Suppose a company's annual turnover is ₹5 crore. Even if its net profit is 10%, that is ₹50 lakh—or about ₹4 lakh per month.
And even that ₹4 lakh may not actually appear as cash in the bank account.
Wouldn't it be more important at this stage to invest in new machinery, new space and the growth of the company?
Instead of making the name look bigger and chasing false prestige, shouldn't you work harder and invest in making the company genuinely bigger?
.... PART 6 ENDS | 21 July 2024
Minish Umrani (Industrial Consultant)
Mobile: 9822390363 | minish@leansigmasolutions.in
PRIVATE LIMITED?
A company being “Private Limited” gives it a certain prestige. It may also appear to improve the chances of attracting good employees. I have noticed that many small entrepreneurs hold this belief.
There are large, privately owned companies that have built major brands. For example, I found these two companies on the internet. I cannot independently confirm all the information, but look at their turnover:
Koch Industries
• Sector: Manufacturing, trading and investments
• Approximate turnover: $125 billion (2022)
Mars Inc.
• Sector: Food products, including chocolates and pet food
• Approximate turnover: $45 billion (2022)
The point is simple: just because your turnover is increasing does not mean you need to immediately convert your business into a Private Limited company.
Converting a ₹2–5 crore business into a Private Limited company merely for prestige can be like “Sonubai with a garland of glass bangles”—a Marathi expression meaning that one may be creating unnecessary trouble without gaining real substance.
It is also expensive.
In India, there is no annual turnover ceiling for a sole proprietorship as such. A sole proprietorship is a simple structure in which the business and the owner are essentially the same person.
However, as turnover grows and the business becomes larger, an entrepreneur may need to consider a more structured form such as a Private Limited company or LLP.
In many cases, an LLP can be more convenient than a Private Limited company.
The reason is that as a business becomes larger, management, financial planning and responsibility become more complex.
A Private Limited or LLP structure can provide better management systems, risk control and certain tax/regulatory advantages.
At the same time, a sole proprietorship can continue at any turnover level as long as the applicable tax and regulatory requirements are met. GST registration and other tax compliances, for example, must be followed where applicable.
You already comply with these requirements.
So if your turnover is ₹4 crore, ₹5 crore or even ₹10 crore, there may be no compelling reason to convert merely for prestige.
But once you get caught up in false prestige, you start the conversion—and then every year you need a Company Secretary and additional compliance.
Some of the major annual documents and compliances for a Private Limited company include:
1. Annual General Meeting (AGM) minutes
• Maintained as part of the company's statutory records.
2. Form AOC-4
• Authority: ROC (Registrar of Companies)
• Filing of financial statements and annual report.
3. Form MGT-7
• Authority: ROC
• Filing of annual return.
4. Form ADT-1
• Authority: ROC
• Appointment of auditor.
5. Income Tax Return (ITR)
• Authority: Income Tax Department
• Annual tax return filing.
6. Company Law Compliance Certificate
• Authority: ROC
• Compliance requirements depend on the company's paid-up share capital and turnover.
7. Form DIR-3 KYC
• Authority: ROC
• Updating directors' KYC details.
8. GST Returns, where applicable
• Authority: GST Department
• Monthly/quarterly/annual GST filings as applicable.
Naturally, preparing and filing all these documents can be complicated for a small company.
Not only small companies but large companies also appoint Company Secretaries for this work. And, of course, that comes at a cost.
Suppose a company's annual turnover is ₹5 crore. Even if its net profit is 10%, that is ₹50 lakh—or about ₹4 lakh per month.
And even that ₹4 lakh may not actually appear as cash in the bank account.
Wouldn't it be more important at this stage to invest in new machinery, new space and the growth of the company?
Instead of making the name look bigger and chasing false prestige, shouldn't you work harder and invest in making the company genuinely bigger?
.... PART 6 ENDS | 21 July 2024
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