By - K. Vidya on November 23, 2022
A private limited company is a type of corporation owned by a group of individuals. It is owned by individuals known as shareholders and is founded with a specific objective in mind. Setting up a Private Company in India has its benefits and involves specific procedures for the same. In India, start-ups and organizations with ambitious expansion plans typically choose private limited companies as their corporate structure.
The fact that India’s economy is one of the worlds fastest-growing is just one of the many reasons for joining the market and setting up a Private Limited Company in India. Schemes and policies such as “Start-up India” and digitization are assisting the Indian economy in embracing the convenience of conducting business, commonly known as “ease of doing business”. Despite this, companies need to know how to incorporate and register a private limited company in India. This article will highlight the same in the following manner:
Section 2(68) of the Companies Act, 2013 defines Private Limited Corporations as having a minimum paid-up share capital of INR One lakh (1,00,000/-) or a greater paid-up share capital and a maximum of 200 members.
A private ownership structure characterizes a Private Limited Company. A Private Limited Company’s members are only liable for the number of shares they own. It is not permitted to publish a prospectus on the open market or to solicit or accept public deposits. Private Company shares cannot be freely transferred. This entity is well suited for start-ups and is also very credible due to the compliance requirements.
A PLC is known for multiple characteristics which make it different from other forms of organizations and make it suitable for start-ups.
In India, a Private Limited Company can have members between a minimum of 2 and a maximum of 200. A minimum of 2 and a maximum of 15 directors are required to establish a Private Limited Company. No one may serve as a director of a Company unless they possess a Director Identification Number (DIN). Further one of the directors must be a resident of India, which means he/she should have stayed in India for not less than 182 days in the previous calendar year.
A Private Limited Company must have a paid-up capital of at least INR of 1 lakh. The companies, at their own discretion, if authorized by the AoA, may increase their paid-up share capital as they deem fit.
In a PLC, the liability of all members or shareholders is restricted to the extent of the shares held by them. Hence, even if the Company faces a loss, the shareholders are only obligated to sell the assets held by them to satisfy the debt. These assets do not extend to their personal and individual assets.
A Company has a separate legal existence in the eyes of law and thus, it can sue and be sued in its name. This also leads to the characteristic of perpetual succession since the Company continues to exist even in case of death, insolvency, or bankruptcy of its members. This means that the Company’s life is eternal in this sense.
King Stubb & Kasiva is a well-established law firm, that deals with corporate advisory and other ancillary legal services. They have a team that is well-equipped with the knowledge and speed to ensure that they are ahead of everyone. They have a consistent grasp of the updates in corporate and commercial law and their application. In addition, the team is also well-equipped and trained to be able to guide companies from the incorporation stage to the operation stage. It is advisable to seek legal services to ensure proper compliance with the procedure for Company incorporation in India. They have significant experience in dealing with several large-scale and medium-scale private companies as well.
Obtaining a Digital Signature Certificate (DSC) for the subscribers (shareholders) is the initial step. All registration forms are required to be digitally signed, and the entire registration process is conducted online. Each subscriber and witness listed in the Memorandum of Association (MOA) and Articles of Association (AOA) must have a DSC. It must be obtained from certifying organizations with government authorization.
A Private Limited Company is required to cover three aspects while deciding on a name.
The MCA created the SPICe+ Form (INC-32) to facilitate the formation and registration of companies. The same form is used to register for or obtain the following:
Electronic filing of the MOA and AOA is necessary under INC-33 and INC-34 forms respectively because the MOA is the company’s charter and the AOA includes all internal rules and regulations. However, submitting the MOA and AOA electronically is mandatory under these forms only when the first subscribers are people from the following category:
There are also certain situations where electronic submission of MOA and AOA may not be accepted such as when the foreign subscribers do not have a valid business visa and so on. In case the first subscribers are foreign subscribers:
The Ministry of Corporate Affairs (MCA) provides the Company’s PAN and TAN and it is mandatory to obtain the same. PAN is required to pay tax by the company and TAN is required to deduct tax for the company.
The company has to provide the documents for the registered office address proof, such as a rent/lease agreement along with a copy of the latest utility bills (electricity bill, water bill, etc.) not more than two (2) months old. In certain cases, a no – objection certificate (NOC) may also be required to be submitted from the owner of the premises of the registered office.
There are fees for multiple registrations which need to be paid, as provided below. These are subject to the nominal share capital, the number of shareholders, and so on.
Once the entire process is completed and the MCA has properly scrutinized all documents, if it is satisfied, it issues the Certificate of Incorporation along with all other documents including the MoA, the AoA, the PAN and the TAN of the company and so on.
India has seen massive business growth in recent years due to favorable laws, government schemes and initiatives, the rising start-up culture, and so on. Several such qualities ensure the ease of doing business in India and encourage people to set up companies in India.
In addition to these, there are several benefits offered by setting up a PLC in India, which make this form of business the best suitable for start-ups, such as:
Private Limited Companies enjoy a great sense of credibility in India and are also suitable for raising funds, especially as required by start-ups. The characteristics of PLCs are such that they fulfil and benefit the requirements of start-ups and even foreigners are indulging in setting up a business in India. In recent times, government initiatives have also ensured ease of doing business in India.
There are certain procedures to be followed for Private Limited Company incorporation in India, which have also been simplified and streamlined by the Ministry of Corporate Affairs. All these aspects combined are very much proof that setting up a business in India has become simpler and more convenient.
The following are the primary steps involved in setting up a Private Company in India:
1. Obtaining a Digital Signature Certificate (DSC) for the subscribers
2. Applying for the name of the company (post trademark search for the name)
3. Filling the SPICe+ form (INC-32)
4. Filing the MOA and AOA with the MCA
5. Applying for the company’s PAN and TAN
6. Submission of the registered office address proof
7. Payment of requisite fees
8. Obtaining the Certificate of Incorporation and other documents.
The following are the primary reasons why PLCs are suitable for start-ups:
1. Limited liability
2. The minimum number of members is 2
3. The minimum number of directors is 2
4. The favourable laws and government schemes to assist the start-ups
5. Relatively convenient ways to raise funds by way of angel investors, venture capitalists, etc in exchange for equity