PRIVATE LIMITED COMPANY REGISTRATION IN INDIA
A company is an association of persons who share a common goal. A Private Limited Company is a corporate legal entity. It is one of the most popular and easy to incorporate and is a privately held business entity in India. The word ‘Private’ denotes that a Pvt. Ltd. Co. cannot invite general Public to purchase its Shares and the word ‘Limited’ denotes that the Liability of the Shareholders and Directors is Limited.
This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares. It has a Minimum of two members and a maximum of 200 members. It is governed by the Companies Act, 2013, Ministry of Corporate Affairs, and the Companies Incorporation Rules, 2014.
For private limited company registration in India, a minimum of two shareholders and two directors are required. A natural person can be both a director and shareholder, while a corporate legal entity can only be a shareholder. Further, foreign nationals, foreign corporate entities or NRIs are allowed to be Directors and/or Shareholders of a the same with Foreign Direct Investment, making it the preferred choice of entity for foreign promoters.
Registering a private limited company in India is a crucial part for any business. It provides an asset of advantages to an Entity.
Some of the salient features of a private limited company in India are limited liability, perpetual succession, corporate legal entity, trustworthiness, capital funding and raising, easy transferability, etc. Register a Pvt. Ltd in India with help of Company Vakil Experts today. Private limited form of incorporation is ideal for start-ups and growing businesses
In India, a private limited company is governed under the Companies Act,2013.
There are many reasons as to why registering a private limited company is a good idea.
Credibility : Registering a Pvt. Ltd. Co. facilitates credibility of the business. Nowadays, customers, vendors and investors look for credibility in the business entity before dealing. It creates a professional image and boosts the business value. Most importantly, registration ensures a certain degree of brand uniqueness and also eliminates duplication in the market.
A Pvt. Ltd. Co. has more credibility than a sole proprietorship or a partnership firm. The registration process authenticates the existence of business thus improving the credibility of the corporation.
Convertibility : A registered Private Limited Company India can convert its structure into a Public Limited Company. This helps to have a broader access to the market.
Protection of Personal Assets : Pvt. Ltd. Formation allows limited liability. In case of a wind up, only the assets of the business can be taken away by the creditors. They cannot touch any personal assets of the members.
Funding : For any new business enterprise, funding is a very crucial aspect of establishing, maintaining and growing a business. For a business to grow quickly, it needs to have all types of funding which can be made available.
A Registered Private Limited Company attracts more investors as the registration process authenticates the existence of business.
Limited liability : It ensures the protection of personal assets of the promoters and it won’t be vulnerable to get seized by the creditors. This is useful particularly when a private company is undergoing a financial distress. A shareholder will not have to pay beyond their unpaid share capital. The company will have a wide legal representation and can own properties without limitation.
Legal entity : A Private limited company is a separate legal entity in itself. This means that in case of any dispute the company can be sued and can sue before the court legally. The company is solely responsible for its assets, liabilities, debtors and creditors and not a shareholder separately. An image of a legal entity allows the company to enter into a contract with other companies and enlarges the scope of business with other corporate organizations.
Perpetual succession : A private limited company will never cease to exist. Legally, the company will continue to operate even if one of its members die, or in cases of insolvency or bankruptcy. Hence, this registration as a private limited company will give the company a perpetual succession, unless it is legally dissolved.
Attract funding : Entrepreneurs prefer private limited companies because it enables them to raise capital through equity and debt funds to have an optimal capital structure, expand the company as well as limit the liability of the shareholders. Access to banks and Foreign Direct Investment (FDI) becomes easier. It is ideal for start ups and venture capitalists.
Trustworthiness : Private limited companies are trusted more since it is governed under the statute/legislation known as the Companies Act, 2013 and registered under the Registrar of Companies (ROC). The complete details of the company can be accessed through the Ministry of Corporate Affairs (MCA) along with the names of the directors of respective companies.
Ownership : In a public company shares can be sold to anyone in the market. It is more like an open market system where a buyer meets a seller. However, a private limited company doesn’t operate that way. The shares can be sold or transferred only if the owner desires so. Management, private investors, founders usually own the shares of a private limited company. Due to the reason that shares are not sold publicly in an open market unlike a public company, shareholders are few in number which eliminates the possibility of confusing and complex issues. For a public company, a minimum of 7 shareholders is necessary whereas for a private limited company 2 shareholders are required at the minimum. Further, limitations applied on a company doesn’t apply to the director(s) of the company unlike a public company.
Easiness : A private limited company can start business once all the legal formalities are completed and it is incorporated. Legal formalities are really short for a private limited company unlike a public company which requires a lengthy process of documentation. Further, registration for a private limited company is available at one’s door step. One doesn’t have to go anywhere to duly comply with the formalities. It is not necessary to file a prospectus with the Registrar and need not obtain a certificate for commencement of business.
Disclosure of information : There is an obligation on a public sector company to disclose financial reports every quarter because it’ll affect public investment. However, there is no such obligation imposed on a private limited company.
Management focus : Public companies primarily focus on increasing their value of shares, whereas private companies focus on short term and long term business goals which depends on the circumstances.
Financial control : Managing and operating through a private limited company would mean that the company deals with its clients directly and only the company itself has control over the clients and finances.
No pressure from Stock market : Private companies have absolutely no pressure or any sort of impact from stock market. There is absolutely no cause of worry when it comes to shareholder expectations and interference as long as the company abides by the law.
Long term planning : Public companies have to increase earnings in a small period of time to increase the value of their stock. On the other hand, private limited companies face no such pressure and can focus on long-term planning or goals.
Minimum share capital : Private companies require less share capital than public companies. For a public company, the minimum share capital is 5,00,000 INR, but for a private company there is no such fixed amount. (Previously it was 1,00,000 INR)
Confidential : Information about a private limited company is usually secure. It could include executive compensation, legal settlements and other essential information.
Expansion: Expanding a private limited company is quite easy because access to capital from financial institutes is easy. A private limited company can also be converted into other forms of business as well. It can pursue new projects, new opportunities, products in the market. It can make capital expenditure to support and enhance business, make acquisitions, fund research and development, pay off organic debt, and grow organically. Further, adding a ‘pvt.ltd’ after the name of a company enriches the respect and fame of a company.
Advantages of tax : Private limited companies have the luxury to enjoy tax benefits wherein companies have to pay corporation tax on their taxable profit. There is a lower tax income and NIC.
Dual Relationships : In a private limited company, it is very easy to enter into a contract with any member of that company. A person can be a shareholder, creditor, director or even an employee at the same time. The rules regarding employees are generally very flexible.
Credibility : By registering as a corporate entity, a private limited company improves its credibility and professional impression, which can further result in profits and business in the future. It will attract investors, access a wider range of leader opportunities, expand market to different locations, create a valuable and trusted brand identity which lets the company compete on a level-playing field with other businesses in the same sector.
Pension : There is scope of providing the opportunity to invest pre-tax trading income in a company pension scheme.
Splitting of income : It is advisable for people who are the main or sole wage earners for the family to hold limited shares in a private limited company, since the business allows to split business profits and minimise personal tax liabilities.
Number of directors : A private limited company requires a minimum of two directors only. It is required that at least one of the directors on the board of directors must have resided in India for a total period of not less than 182 days as per the previous calendar year. The directors and the shareholder can be same.
Clearly, there are many reasons to register as a private limited company. It offers many advantages to both the company and the shareholders. In India, 93% of the companies incorporated have registered themselves as private limited companies.
Registration of a Pvt. Ltd. company is a simple 4-stage process. The following the stages of registration:-
Obtain Digital Signature Certificate (DSC)
The first and foremost step involves the procuring of the digital signature certificate which is nothing but e-signature certificate which is issued by the Certifying Authority in token form and is valid for 1 or 2 years. All the proposed directors of the Pvt. Ltd. are required to apply for the digital signature i.e. DSC.
Obtain Director Identification Number (DIN)
A registered Pvt Ltd Company in India can convert its structure into a Public Limited Company. This helps the corporation to have a broader access to the market. Directors Identification number is a unique eight-digit number which is a mandatory requirement for all the directors. Ministry of corporate affairs allots a DIN to every director with a lifetime validity.
- The name should be easy to spell and remember;
- The name shall be able to provide a distinct identity to the entity, It should be short & simple.
- The name should not contain any word as opposed to public policy or prohibited.
- Once the application submitted through Reserve Unique Name Form (i.e. RUN Form) is approved, the registrar shall reserve the name for a period of 20 days.
Reservation and Approval of Name via RUN (Reserve Unique Name) Form Once the DIN and DSC of the directors are obtained, a list of 2 proposed names under the RUN (Reserve Unique Name) form for Pvt. Ltd is submitted to MCA for approval. Some of the considerations before selecting the name are:-
The applicant is now ready to start his/her business!
The Certificate of Incorporation (COI) issued will include the date of incorporation as well as the Permanent Account Number (PAN) of the entity.
- Certificate of Incorporation
After the stage of Name Approval, a Memorandum of association (MoA) and Articles of association (AoA) is drafted. Both MoA and AoA are charter documents for a Pvt. Ltd. Company in India. All the incorporation documents need to be submitted with the prescribed e-form SPICe-INC- 32 along with the AoA, MoA and subscription statement. Once all the documents are duly verified and approved by the government, the certificate of incorporation is emailed to the applicant by the Registrar under his seal and signature.
- A minimum of 2 Shareholders and 2 Directors are required for the registration, where directors and shareholders can be same.
- Minimum 2 Persons & Maximum 200 Persons.
- There is No Minimum Authorized Share Capital but it is advisable to keep a minimum capital of ₹ 100,000 (INR One Lakh).
- All Required documents ( Clear and on provided format )
Name should be unique ( For the stage of name approval)
- Memorandum of Association and Articles of Association
- Words “Private Limited” to be added as suffix to the name is mandatorily
Ease of Company Formation in India
Formation of a Pvt. Ltd. Company requires a minimum of 2 members thus making the formation quite simple and easy for people in general. Nowadays a Company can be incorporated in a matter of few days, and there is no Compulsion of Name Approval, the concerned person can straight-off go for a SPICe form and file the same to the ROC for Company Registration, or else they can first do it via Name selection through RUN Form submission with MCA for Company Incorporation and then file for SPICe Form with necessary docs and then in a matter of a week all the formalities are done and a CIN is issued.
Flexibility in Management of Entity
Corporations other than Pvt. Ltd. Corporations have a proper management structure. They need a board of administrators to administrate company policies and to appoint officers to manage the daily operations of the business. Any sort of Limited Liability Corporation doesn’t necessarily need to own a rigid structure, they basically offer a great amount of flexibility. So Private Limited Company Registration in India is not only easy to form but is also easy to manage and run. The registration process takes between 7 to 10 working days. It offers the flexibility of a partnership firm and the advantages of a Public Ltd Co.
The members of the Private Limited Company aren’t in charge of the debts of the corporate. The shareholders are solely liable for their share of the contribution that they have endowed with the company. Shareholders’ liability is restricted to their unpaid quantity of shares solely. All the members of the corporate have limited liability in accordance with their respective shares invested in the body corporate so they have a limited liability towards the same. In simple words the liability of each member or shareholder is limited. This means that as a shareholder one will be liable to pay for liability only to the extent of the contribution made by such person.
An incorporated company never dies, except once it’s tense as per law. A company, being a separate legal person is unaffected by the death or departure of any member and it remains an identical entity, despite total amendment within the membership. Perpetual succession means the membership of an organization might keep dynamic from time to time, however, that shall not have an effect on its continuity. So basically an entity always exists in the eyes of the law even in case of death, insolvency, or bankruptcy of any of its members. This leads to a perpetual succession of the entity. The life of the corporation exists forever. There is a Very Famous saying by Sir Alfred Lor Tennyson which can be rephrased to explain Perpetual Succession i.e. “For Men May Come and Men May Go but a Company Goes on forever”
Distinct Legal Entity
A Pvt. Ltd. Co. is a legal entity and artificial person established under the Companies Act. This means that Members (Shareholders/Directors) are responsible for the management of the company. A member has no personal liability to the creditors for the company’s debts. In simple words, a private limited company features a distinct existence and a juristic person (not a natural person or human being) established underneath the Act. This Company type contains a wide legal capability and is allowable to possess property together with acquisition debts. Members and Promoters square measure break away from the corporate. Therefore the distinct legal entity edges the members.
Expansion and Convertibility
There is a higher scope of expansion because it is easy to raise capital from financial institutes, angel investors, Venture capitalists, or any other external investment. A Pvt. Ltd. Co. is also flexible to be converted into other forms of business such as a Public Limited Company, Nidhi Company, etc and can expand its virtue and scope. Basically, the scope for expansion is highly advantageous in nature as there is no obligation on the investors and creditors to invest in the body corporate but that plays a very effective role in the branding, promotion, and effective management of the entity
A Pvt. Ltd. Company Registered in India is also easy to wind up and dissolve, especially post the enactment of Startup India and Make in India moment by the Government. There are various ways of Dissolving a Company it can be via applying for Winding Up or if it’s a small non-functional company, you can go for a Strike-Off for the same and the company won’t exist as an Active entity in the MCA‘s Registrar of Company.
OWNING THE COMPANY
Since an entity is a fictitious person, so technically it becomes the sole owner of everything owned by it and nobody can demand the possession of the same. The shareholders cannot make any claim upon the property of the corporation, the Pvt Ltd. Company itself is the true owner. Although, at the time of dissolution of the Company via Winding up or by any other means, once paying each debt, Shareholders will claim their quantity from the property of the company.
Funds are often borrowed to a good extent by Private Limited Companies. A lot of Registered Companies raise funds from shareholders. Also, the Banking and monetary institutions prefer a private limited company instead of any other alternative type of business entity.
The investors and other creditors of the Private Limited Company invest easily in Pvt ltd. co. because its major advantage of limited liability and another beneficial reason is that there is less amount of tax liability (deductions are done as per Section 80C to 80U of the Income Tax Act) plays a very crucial and effective role in the formation of the body corporate and furthermore, for its organizational growth and expansion.
A Private Limited Company has various Tax Advantages over other forms of business entity. As per current Tax norms, a Private Limited Company is covered under the flat rate of 25% Income Tax up to a turnover of 50 Crores during the previous year and 30% in case it exceeds the turnover of Rs. 50 Crore. Similarly, if a company’s turnover exceeds a turnover of Rs. 20 Lakhs then GST Registration becomes mandatory for it over the same.
This means in an exceedingly private limited company it is attainable to form an efficient contract with any of its members. An individual may be at an equivalent time an investor, creditor, director, and conjointly a worker of the corporate. It’s versatile relating to the members of the corporate.
RESTRICTED TRADE OF SHARES
The restriction placed on the sale or transfer of shares could also be thought about as a bonus or disadvantage looking on your outlook. It is a bonus to some shareholders as a result of shareholders World Health Organization’s need to sell shares cannot sell them to outside patrons. Shareholders should additionally comply with the sale or transfer of shares; so, the chance of hostile takeovers is low. The restriction placed on the sale of shares could be a disadvantage as a result of shareholders having restricted choices for liquidating shares.
CAPACITY TO SUE AND BE SUED
A company is a body company, that will sue and be sued in its own name. To sue means to institute legal proceedings against (a person) or to bring a suit in a very court of law. All legal proceedings against the corporate area unit are to be instituted in its name. Similarly, the corporate could bring associate degree action against anyone in its own name.
DISTRIBUTION OF PROFITS
Private Limited Company directors will decide how they want to distribute profits to their shareholders. In contrast to various other forms of entities, they’re needed to share profits with shareholders.
A Private Limited Liability Company could be a versatile type of business entity that gives several benefits. It limits the liabilities of the owners, does not need heaps of record-keeping, avoids double taxation, and provides the owners with lots of choices for a management structure that matches their things.
PRIVACY OF ACCOUNTS
Private Limited Liability Company, has a complete series of books of accounts which can be or cannot be shown to others, as a reserved right kept with the corporate. All the business transactions are recorded in a manner that has a clear ideology behind the concept of revealing the books of accounts before the several partners and stakeholders of the corporate.
Moreover, as a matter of fact, as compared to a public limited liability company, this type of corporate body has an obligation to publish its books of accounts or other relevant information that is related or in accordance with the books of accounts, but a corporate-like Private Limited Company has a benefit over this, it has complete privacy of books of accounts and no other private or public department is entitled to ask to show or publish their books of accounts.
There are basically 3 types of Statutory meetings i.e. an Annual General Meeting, a General Meeting, and Extra Ordinary General Meeting. Only an AGM is the one that has to take place at a particular time and within a stipulated Time Interval every year, rest of the meetings are not Mandatory they are called upon as per the convenience and need of the Directors of the Pvt. Ltd. Company in India.
A Private Limited has Legal formalities throughout the year like Filing Annual Returns, Income Tax Filings, Meetings, Records of Meetings, Invitations for Meetings, Shareholders’ Meetings, Separate Directors’ Meetings, GST return filling, etc.
Avoiding the Legal formalities will result in high penalties and even imprisonment of Directors.
Private limited Company restricts the transferability of shares by their articles. Shares cannot be sold or transferred to anyone without the consent of the Board of Directors. In the case of selling shares to an outsider, a shareholder must make an offer to the existing shareholders of the corporation before selling.
With New Company Registration rules, there is No Minimum Authorized Share Capital required for forming a Private Limited Company in India.
Restricted Access to Capital Markets
A Pvt. Ltd. Company cannot get its shares listed in any stock exchange through initial public offerings. With this restriction, private limited companies may find it difficult to attract outside investors to buy the shares.
A Compulsory Audit has to be conducted in every financial year.
Selection of Name
The availability of a name becomes a problem certain guidelines are to be followed while selecting the name, and we at Company Vakil have made it simple with our Company name search tool.
Comparatively Complicated than LLP
The procedure for Registration of Pvt Ltd. Company in India is comparatively complicated as well as costly in comparison to a Limited Liability Partnership (LLP).
In a Pvt. Ltd. Company, profits are to be shared amongst a larger number of people as it has many shareholders.
WHAT WILL YOU GET AFTER COMPANY REGISTRATION?
TOTAL TIME TAKEN
DSC is an electronic online signature issued by licensed certifying authorities. All the proposed directors of the company are required to apply for a digital signature (DSC), it is necessary for digitally signing the electronic incorporation documents.
Directors Identification number is a unique eight-digit number which is a mandatory requirement for all the directors of the proposed corporation. Ministry of corporate affairs allots a DIN to every director of the entity with a lifetime validity without which one cannot be a director.
Once we obtain the DIN and DSC of the directors, a list of 2 proposed names for the entity will be submitted via a RUN Form (Reserve Unique Name Form) to MCA for approval. We will conduct a prior detailed check for your name availability through our unique name search tool. We get your name approved subject to availability and naming guidelines.
After the stage of Name Approval, we draft a Memorandum of association (MoA) and Articles of association (AoA) for your corporation. All the incorporation documents need to be submitted with the prescribed e-form SPICe - 32 along with the AoA, MoA and subscription statement. Once all the documents are duly verified and approved by the government, the certificate of incorporation is emailed to you. During which, we will apply for PAN and TAN of your newly commenced entity.
Do I Physically need to visit your Office or the whole process can be done Online?
No office/physical Visits are required, it is a 100% Online Process, and all the necessary Documents will be exchanged through email.
How many Shareholders can be there in a Pvt Ltd. Co.?
Minimum 2 or Maximum 200 Shareholders are required for its incorporation.
Who can be a Director in a Pvt Ltd. Co.?
Any Individual beyond the age of 18 Years can be a Director in a Pvt Ltd. NRI’s & Foreign Nationals can also start and Manage a Private Limited in India as there is no Restriction on Citizenship or Residential Status.
How many Directors are required to commence the Pvt. Ltd. Co.?
Minimum 2 and Maximum 15 Directors are required to incorporate a private ltd. in India.
Can an already employed person be a Director in a Company?
Yes, you can become a Director. If the Employment Contract allows you to do so. There are no Legal Limitation in this regard.
What is meant by Authorized Capital and Paid up Capital?
Authorized Capital is the maximum Amount of Equity Share that can be issued by a Pvt. Ltd. Co. and Paid UP Capital is the total amount of Shares issued to the Shareholders. Authorized Capital can be raised any time after Commencement of an Entity to issue more Shares to the Shareholders.
What is a DSC i.e. a Digital Signature Certificate?
DSC is considered an Identity of a Directors, it is an Electronically Encrypted Signature unique to a particular person and has been made Mandatory by MCA for all the Directors.
Why Should a Startup Choose a Pvt Ltd. Company?
Pvt Ltd. Co. is Considered as the best option for any Startup because of the following Reasons:-
1. It shows a Startup’s Credibility and a Long Term Business Goal.
2. Limited Liability i.e. it is limited to the Value of Shares Allotted
3. Minimum 2 Directors/Shareholders are required to incorporate a Pvt. Ltd. Co.
4. It is a Pre – Requisite for getting Funding.
5. Flexible – In future can be converted into a public Limited Company’s
6. Limited Annual Compliance