A Private limited Company, also known as a "close corporation," is a type of business structure in which the Company is Privately owned, and the shareholders' liability is limited to their individual investments in the Company. Private limited Company registration is considered the most suitable and desirable form of starting any business or entering the corporate world.
A Private Limited Company in India is registered under the laws of the jurisdiction in which it operates and is separate from its members, meaning the member’s personal assets are protected in event of the Company’s failure. Having its legal identity of its own, it can enter into contracts or sue or be sued in its own name, own assets etc. The legal definition of Private Limited is defined under Section 2 (68) of the Companies Act, 2013. A Private Limited is identified usually by abbreviation “Pvt Ltd” following the name.
After the adoption of the Companies Amendment Act, 2015, no minimum capital requirement is there to register a Private Limited Company in India. Also, Private Limited is not required to file their financial statements with the public. Also, the shares of a Private limited Company are not publicly traded on a stock exchange in pursuance to regulations of Companies Act, 2013.
Separate legal existence
The Private Limited Company has a separate legal entity as recognised by law. The entity is a legal person having its own rights and obligation, independent and separate from those of the owners who are controlling the entity. It protects the owners from any financial liability by avoiding any kind of personal liability. The Doctrine of Separate Legal Entity has been applied in the case law of Salomon v Salomon co. Ltd. throwing lights on the concept with an exception ‘Lifting of the Corporate Veil’ to avoid any fraud or misuse.
Limited Liability
The Private Limited Company has a limited liability which is of great benefit to the start-ups. The concept states that the business protects its owners from any kind of personal financial responsibilities or obligations, or any such liabilities. In case of any uncertainty or business failure, the liability is to be borne by the Company legal structure.
Perpetual Succession i.e., Business continuity
Business continuity is termed as Perpetual succession which denotes everlasting existence. The continuation of the business goes on despite any security breach, bankruptcy, death, change in membership, exit of any owner or member, transfer of shares or insolvency etc. It is a concept which is created by law and has its own legal status. The business continuity provides the owners with better stability and growth to run the business efficiently meeting its targets while building its brand.
Easy transfer of shares
The Private Limited Company can transfer the shares easily without much hassle. The process to transfer the shares or stock in case of a Private Limited Company registration is not complex. The transfer can be done through filling of the form for such transfer and by signing the transfer form which is then handed over to the owner of the shares along with the share certificate having Company’s common seal.
Raise funds
The Private Limited Company registration attracts funding through various sources which really provides an aid to the start-ups. Internally the funding options can be through the additional issue of the share capital using selection of Rights issue, Private Placement or ESOPs, availing loans and debentures or deposits either from the Directors of the Company or the relatives of Directors. Whereas externally, funding can be obtained through bankers, financial institutions, angel investors, venture capital etc.
Strong Credibility
The Private Limited Company once registered on the Ministry of Corporate (MCA) Portal, the Company database and information is available on the public domain pertaining to incorporation of the Private Limited Company. This improves the credibility of the Company and attracts genuine investors in the interest of the Company for better business and future expansions.
Registering a Private Limited Company in India is a relatively straightforward process that can be completed in several steps and needs certain approvals. Here is an overview of the process and what you will need to do to get your Company up and running.
Shareholders
There should be minimum two (2) shareholders and maximum limit is up to two hundred (200) in the Private Limited Company. Shareholders represent as the owners of the Company and subscribers to the Memorandum of Association (MOA). A shareholder can be any person or an individual, including a foreigner or a body corporate except a Co-operative Society.
Directors
Number of directors – there should be minimum two (2) and maximum fifteen (15) directors, one being an Indian resident which means he/she has stayed in India for not less than 182 days in the previous calendar year.
DIN – All Directors must obtain the Director Identification Number (DIN) governed by MCA. The DIN application can be done while filing web-form SPICe+ (PART-B) which allows up to three directors.
First Directors – The first Directors are appointed by the members of the Company called as ‘First Directors’ and are in charge of controlling the internal affairs of the business and responsible for all decision makings.
Name of the Company
Private Limited Company being registered should have a unique name which is not identical to any existing names under Ministry of Corporate Affairs (MCA) or incompatible to Trademarks Act, 1999.
The name should resemble the activities being carried out in the business.
The draft rules formed as the name guidelines as per Companies Act, 2013 should be read while deciding the proposed name of the Company.
The word ‘Private Limited’ or ‘Pvt Ltd.’ is added at the end of the name of the Company.
Name reservation is done through the SPICe+ application form using Part-A initially or together Part-A (name reservation) and Part-B (all other services) simultaneously.
Registered Office
The registered office of the Company is the official business address where all the business activity is to be carried out and the location where all communication and legal notices are sent. The registered office must be within the jurisdiction in which the Company is incorporated.
Private Limited Company is required to display the Name, CIN and address of the Company at its business place, on websites and all other official documents and correspondence.
Per the Companies Act, 2013, the owner’s residential address can be used as the registered office address of the Company given the laws prescribed under Section 12 of the Companies Act, 2013 are met which states, the applicant should obtain a No Objection certificate (NOC) from the owner to use the property for business purposes.
It is important to note that the registered office address of the Company may or may not be the same as the trading address or location of the primary place of business, but the official address is considered as the legal address of the Company.
Capital – there is no minimum capital requirement for a Private Limited Company registration in India post the adoption of the Companies Amendment Act, 2015. The capital to be infused in the start can be of any amount based on which the government fee is calculated while incorporation process.
There are a number of documents that are required to register a Private limited Company in India under the Companies Act, 2013. Here is a list of the key documents that will be needed:
Identity proof – The identity proof for all members and directors is to be duly self-attested to register the Private Limited Company. The email-address, contact details and Passport size photographs are required for all directors in the Private Limited Company. Below is the required list of documents:
For Indian Nationals:
a) PAN card mandatory
b) Aadhar ID / Passport / Driver’s License / Ration Card
c) Official email address
For Foreign Nationals:
a) Passport is mandatory
b) Driver’s License / Bank Statement / Residence Card
c) Official email address
Address proof – Two address proof is required for all proposed members and Directors which includes the below:
a) Passport / Utility bills* / Bank statements with Voter ID/ Driver license/ Property Tax receipts, or any government issued document proof having name and address.
*(i.e., electric bill, telephone bill, water / gas bill, not older than two months)
b) If one of the Company’s members is a Company itself (in India or abroad), the below listed document should be submitted:
· Incorporation Certificate of the Company
· Board resolution authorizing investment in the Company
· Address proof of the Company
Registered office – This includes a copy of the utility bill / bank statement. In addition, the rent agreement or sale/lease deed for the registered office of the Company including No Objection Certificate (NOC) obtained from the owner to use the property as a registered office.
Digital Signature Certificate – The subscribers and directors of the Private Limited Company duly appointed should obtain the Digital Signature Certificates (DSCs) under the Class-III category. The DSC’s can be obtained from any certified service provider which usually takes a day or two and is ready for attestation and filing purposes of e-forms. Any government issued document containing the photograph and address would serve as a valid document for DSC application.
The Private Company registration can proceed once the above requirements are catered. The applicant can register for a Private Limited Company by log in through MCA portal, but before that, lets understand the new web form and other changes including the attachments required for registering the Private Limited Company.
1. SPICe+ form:
SPICe+ stands for Simplified Proforma for Incorporating Company electronically Plus. SPICe+ aims to offer about 10 services by three Central Government Ministries and Departments (Ministry of Corporate Affairs, Ministry of Labour and the Department of Revenue in the Ministry of Finance) and one State Government (Maharashtra). The new integrated web form has two parts as below:
Part A – Name reservation (for new companies only)
Part-B – Intergrated form for Company Incorporation
· Company incorporation
· Application for DIN
· PAN Application
· TAN Application
· GSTIN Application
· EPFO Registration
· ESIC Registration
· Opening of Bank Account for the Company
· Profession Tax Registration (only for Maharashtra)
The web-based for SPICe+ can be applied in two ways:
a) Part A (Name Reservation) and Part B (Incorporation and all other services) can be applied for on a simultaneous basis.
b) Part A can be applied for initially, and upon reservation of the name, Part B can be applied for.
Attachments required for SPICe+ form:
a) Memorandum of Association
b) Articles of Association
c) Declaration by the first director(s) and subscriber(s) (Affidavit not required)
d) Proof of office address
e) Copy of utility bills
f) Copy of certificate of incorporation of foreign body corporate (if any)
g) A resolution passed by promoter Company
h) The interest of first director(s) in other entities
i) Consent of Nominee (INC–3)
j) Proof of identity as well as the residential address of subscribers
k) Proof of identity as well as residential address of the nominee
l) Proof of identity and address of Applicant I, II, III
m) Resolution of unregistered companies in case of Chapter XXI (Part 1) Companies
n) Declaration in Form No. INC – 14
o) Declaration in Form No. INC – 15
p) Optional attachments (if any)
q) Attachments – Part A
2. AGILE PRO:
The old AGILE form (INC – 35) pursuant to rule 38(A) of the Companies (Incorporation) Rules, 2014 which is now replaced with the AGILE – PRO web form.
‘AGILE’ stands for Application for Goods and services identification number, employees’ state Insurance corporation registration plus Employees’ provident fund organisation registration.
AGILE-PRO-S form is part of SPICe+ form for GSTIN / EPFO / ESIC/ Profession Tax/ Bank Account/Shops and Establishment Registration).
Attachment required for AGILE PRO:
a) Proof of principal place of business
b) Proof of appointment of Authorised Signatory for GSTIN (Either of the documents– Letter of Authorisation/Copy of Resolution passed by BOD/ Managing Committee and Acceptance Letter)
c) Proof of identity of Authorised Signatory for the opening of a bank account
d) Proof of address of Authorised Signatory for the opening of a bank account
e) Specimen Signature of Authorised Signatory for EPFO
Login to MCA portal – The applicant shall choose SPICe+ under MCA Services selecting the e-form section as a new application. If the user has an existing application, then the existing application is to be selected.
Pre-fill categories – The applicant shall select the type, class, category, sub-category, Main division of industrial activity of the Company’ where the code of the industrial activities is to be mentioned.
Proposed Name – The applicant shall reserve two proposed names and the ‘auto-check’ feature is to be used in accordance with the rules governing the name. Part-A is to be submitted after ‘auto-check’ and upon submission Part-B is enabled.
In case, the applicant is only filing SPICe+ Part-A (name reservation for new companies only)
The applicant should use the PART-A section of the web-form SPICe+ online, reserving up to two proposed names adhering to all the regulations governing the Act. The web-form allows one resubmission without any fee, if the proposed name gets rejected after submission, the applicant can re-submit the web-form with a new proposed name.
Once the proposed name is approved on the MCA Portal, the name is available for a period of twenty (20) days, within which the applicant needs to proceed with the PART-B section of the web-form SPICe+ online.
SPICe+ Part-B (Incorporation and other services)
The PART-B contains all the information pertaining to incorporation of the Company, the subscribers and directors’ application to DIN form encompassing various sections with ‘check form’ in each section.
After filing the Part-B, ‘pre-scrutiny’ check is to be done, upon successful pre-scrutiny, the applicant shall submit the Part-B of the web form. Upon completion, the Part-B confirmation PDF displayed should be downloaded and certified affixing the Digital signature Certificate (DSCs) of the Directors and professional for filling up the other linked forms with Part-B. The linked forms are AGILE PRO, SPICe+ MoA and SPICe+ AoA, URC-1 and INC-9. The linked forms and Part-B shall be uploaded online and a challan is generated by the system with a unique service request number (SRN) for making the payment online for incorporation of Private Limited Company on MCA Portal.
Post the payment, the form is processed and after successful examination of the e-form submitted by the applicant, the Registrar of Companies (ROC) issues a Certificate of Incorporation to the Company. If any resubmission is required, the same is to be done by the applicant.
This certificate of incorporation can be seen on MCA portal as well as will be received on the registered email address of the Company, containing the Corporate Identification Number (CIN) and other details are visible on the MCA Portal under Company details section.
Limited liability: Shareholders are only liable for the debts of the Company to the extent of their unpaid share capital. This means that the shareholders' personal assets are protected in the event of the Company's failure.
Separation of ownership and control: Shareholders are the owners of the Company, but they typically do not participate in the day-to-day management of the business. This is the responsibility of the Company's directors.
Transferability of shares: The shares of a Private limited Company can typically be transferred, but there are often restrictions on the transfer of shares, such as the need for approval from the Company's board of directors.
Number of shareholders: There is usually a restriction on the number of the shareholders, usually 200. And special resolutions can be passed to increase the limit of members or directors.
Fundraising and Taxation: It is harder to raise funds than Public limited Company, generally shares are not available to the public. Taxations are generally taxed at a lower rate than public limited Companies.
Continuity: Private companies have no requirement for an Annual General Meeting (AGM) and the financial year end does not need to coincide with the calendar year end.
Reporting Requirement: The reporting requirements of Private companies are less onerous than those of public companies and are required to file much less information to Companies House than public companies.
Thus, the registration and formation of the Private Limited Company is incorporated once the above procedures are fulfilled. We at Compliance Calendar would help from the start in incorporation of your business at your doorstep. As we noted in terms of management and operation, Private limited companies have more flexibility than public limited companies and universally accepted business structure which is relied upon across borders by MNCs when need arises to collaborate.
Having several reasons from relaxed rules for shareholders' meetings and decision-making under Companies Act, 2013 to reporting requirements, registering a Private Limited Company is the most common and successful form of business type in India and as governed by the Ministry of Corporate Affairs.