I. INTRODUCTION
A private limited company is a type of business entity in which the company is privately held, and its shares are not publicly traded. It is a popular form of business in India due to the advantages it offers, such as limited liability protection, easy transferability of shares, and a separate legal entity status.
However, before starting a private limited company in India, it is essential to understand the legal requirements for incorporating it. In this article, we will discuss the legal requirements that must be fulfilled to incorporate a private limited company in India.
II. DIRECTORS AND SHAREHOLDERS
To incorporate a private limited company in India, the following requirements must be met regarding directors and shareholders:
- Minimum number of directors and shareholders: A private limited company in India must have a minimum of two directors and two shareholders. These directors and shareholders can be the same individuals or different entities. However, there is no maximum limit on the number of directors and shareholders a company can have. It is advisable to have more than two directors for better decision-making and management.
- Indian Resident Director: One of the directors of a private limited company in India must be an Indian resident. A person who has stayed in India for a minimum of 182 days in the previous calendar year is considered an Indian resident. The Indian resident director must have a valid Director Identification Number (DIN) and must be at least 18 years old. The DIN is a unique identification number given to all directors of Indian companies and is issued by the Ministry of Corporate Affairs (MCA). The Indian resident director plays a crucial role in the company’s operations and decision-making. The Indian resident director is responsible for ensuring compliance with Indian laws and regulations and serves as a point of contact between the company and the Indian authorities.
- Shareholders: The shareholders of a private limited company can be individuals or corporate entities. There is no restriction on the maximum number of shareholders a company can have. Shareholders can be Indian residents or foreign nationals or entities. The shareholding pattern of the company can be changed by transferring shares among the shareholders.
It is essential to note that the liability of shareholders in a private limited company is limited. This means that the shareholders are not personally liable for the company’s debts beyond the amount of their investment in the company. In the case of a corporate entity being a shareholder, the liability is limited to the value of its shareholding.
III. REGISTERED OFFICE AND NAME RESERVATION
Registered Office: Maintaining a registered office in India is a legal requirement for all companies, including private limited companies. This office serves as the company’s official address for communication and legal purposes, and must be open during normal business hours. It is important that the registered office be a physical address and not a P.O. Box. The company must keep the Registrar of Companies (ROC) informed of the current registered office address at all times.
It is important to note that the requirements for incorporating a private limited company in India can be complex and should be approached with the help of a qualified legal professional. Compliance with all legal requirements is necessary for a successful incorporation and to avoid any future legal issues.
Name Reservation: The company name is an essential aspect of the incorporation process. A unique name that is not identical or similar to any other company’s name is required. The name should not violate any trademarks or patents, and it should not be misleading or offensive.
The process for reserving the company name with the Registrar of Companies (ROC) is as follows:
- Step 1: Choose a unique name for the company and check its availability on the MCA portal.
- Step 2: Once a unique name is chosen, file an application for the name reservation with the ROC.
- Step 3: The ROC will examine the application and approve or reject the name based on the availability and compliance with the naming guidelines.
- Step 4: If the name is approved, it will be reserved for a period of 20 days, during which the company must submit the incorporation documents. The name can be extended for a further 20 days by filing an extension request.
- Step 5: If the incorporation documents are not filed within the given time, the name reservation will lapse, and the company must file a fresh application for name reservation.
It is important to note that the name reservation is valid for only 20 days, and the incorporation documents must be submitted within this period. If the incorporation documents are not submitted within this period, the company must file a fresh application for name reservation.
IV. MEMORANDUM OF ASSOCIATION (MOA) AND ARTICLES OF ASSOCIATION (AOA)
The Memorandum of Association (MOA) and Articles of Association (AOA) are two important documents required for the incorporation of a private limited company in India. These documents define the objectives and scope of activities of the company, as well as the rules and regulations for its internal management.
The MOA is a legal document that defines the company’s objectives and scope of activities. It outlines the company’s purpose and the activities it is authorized to undertake. The MOA must contain the name of the company, its registered office address, the objects for which it is established, the liability of its members, and the amount of share capital with which it is incorporated. The MOA cannot be altered easily and requires the approval of the shareholders and the ROC if any changes are made.
The AOA, on the other hand, sets out the rules and regulations for the internal management of the company. It covers matters such as the appointment and removal of directors, their powers and duties, the conduct of board meetings and general meetings, the issue and transfer of shares, and the distribution of profits. The AOA can be altered relatively easily by passing a special resolution, which requires the approval of at least 75% of the shareholders.
Both the MOA and AOA are critical documents that must be prepared carefully and accurately to ensure that the company operates within the boundaries of the law. It is recommended that the drafting of these documents be done by a legal professional to avoid any errors or omissions that could cause problems in the future.
The process of getting the MOA and AOA for a private limited company in India is as follows:
1. Drafting the documents: The first step is to draft the MOA and AOA in accordance with the requirements of the Companies Act, 2013. This should ideally be done by a legal professional to ensure accuracy and compliance with the law.
2. Signing the documents: Once the MOA and AOA have been drafted, they must be printed on non-judicial stamp paper and signed by the subscribers to the memorandum. The subscribers are usually the initial shareholders of the company.
3. Submission to the Registrar of Companies (ROC): The signed MOA and AOA, along with the other required documents, must be submitted to the ROC within 60 days of incorporation. The documents must be filed electronically through the Ministry of Corporate Affairs (MCA) portal.
4. Verification by the ROC: The ROC will verify the documents and, if everything is in order, will issue a Certificate of Incorporation. This is the final step in the process of getting the MOA and AOA for a private limited company in India.
It is important to note that the MOA and AOA cannot be altered easily once they have been filed with the ROC. Any changes to these documents require the approval of the shareholders and the ROC, and the process can be time-consuming and costly. It is therefore important to ensure that the MOA and AOA are drafted carefully and accurately in the first instance to avoid any future problems.
V. DIGITAL SIGNATURE CERTIFICATE (DSC) AND DIRECTOR IDENTIFICATION NUMBER (DIN)
In order to incorporate a private limited company in India, the directors of the company must obtain a Digital Signature Certificate (DSC) and a Director Identification Number (DIN). These are important requirements for ensuring the authenticity of documents and filings submitted to the Ministry of Corporate Affairs (MCA) and to maintain a record of the directors of the company.
1. Digital Signature Certificate (DSC): A DSC is an electronic certificate that is used to sign documents and filings submitted online to the MCA. It is issued by a certifying authority authorized by the Controller of Certifying Authorities (CCA). All directors of the proposed company must obtain a DSC from a licensed certifying authority.
2. Director Identification Number (DIN): A DIN is a unique identification number issued to every director of a company. It is mandatory for all directors of a company to have a DIN. In order to obtain a DIN, directors must submit an application to the Ministry of Corporate Affairs along with their identity and address proof.
The process for obtaining a DSC and DIN for directors is as follows:
1. Obtain identity and address proof: Directors must obtain valid identity and address proofs such as a PAN card, Aadhaar card, passport, or driver’s license.
2. Apply for a DSC: Directors can apply for a DSC from licensed certifying authorities such as eMudhra, Sify, or NSDL. The DSC can be obtained online by submitting the required documents.
3. Apply for a DIN: Directors must apply for a DIN through the Ministry of Corporate Affairs website by filling out the online application form and submitting the required documents. Once the application is processed and approved, the DIN will be issued.
Obtaining a DSC and DIN is a mandatory requirement for directors of a private limited company in India. These documents ensure the authenticity of documents and filings submitted to the MCA and maintain a record of the directors of the company.
VI. Filing of Forms and Payment of Fees
Once the company has obtained the necessary documents and completed the previous steps, it is time to file the required forms with the Registrar of Companies (ROC) and pay the associated fees. Here are some of the forms that must be filed along with the applicable fees:
1. Application for name reservation: The company must file Form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) with the ROC for the reservation of the company name. This form must be filed along with the prescribed fee.
2. Incorporation documents: The company must file Form SPICe+ for incorporation along with the memorandum of association, articles of association, identity and address proof of directors, and other relevant documents. The prescribed fee must be paid along with this form.
3. Appointment of directors: The company must file Form DIR-12 for the appointment of directors along with their consent to act as directors, identity proof, and address proof. The prescribed fee must be paid along with this form.
4. Other forms: Depending on the specific requirements of the company, other forms may need to be filed with the ROC. For example, if the company is engaged in certain types of businesses, it may need to obtain additional licenses or approvals from regulatory authorities.
The fees that must be paid to the ROC depend on the authorized capital of the company. The fee schedule is available on the MCA website and may be subject to change from time to time. It is important to pay the fees on time to avoid penalties or delays in the incorporation process.
Incorporating a private limited company in India requires filing various forms with the ROC and paying the associated fees. It is important to ensure that all the required forms are filed correctly, and the fees are paid on time to avoid any delays or penalties.
VII. ADDITIONAL STEPS AND DOCUMENTS
there are a few additional steps and documents that are required for incorporating a private limited company in India, which can vary depending on the specific circumstances of the company. Here are some examples:
1. Obtaining a Permanent Account Number (PAN) and Tax Account Number (TAN): Every company in India is required to obtain a PAN from the Income Tax Department and a TAN from the Tax Deduction and Collection Account Number (TAN) Unit of the Income Tax Department. These numbers are necessary for the payment of taxes and filing of tax returns.
2. Obtaining other registrations and licenses: Depending on the nature of the business, the company may need to obtain additional registrations and licenses, such as a Goods and Services Tax (GST) registration, import-export license, or specific industry-specific licenses.
3. Opening a bank account: The company must open a bank account in its name and deposit the minimum capital required for incorporation.
4. Drafting of other agreements: The company may need to draft various other agreements, such as shareholders’ agreements, employment agreements, or non-disclosure agreements.
VIII. CONCLUSION
In conclusion, incorporating a private limited company in India involves several legal requirements that must be fulfilled. These include appointing directors and shareholders, obtaining a Digital Signature Certificate and Director Identification Number, reserving the company name, drafting the Memorandum of Association and Articles of Association, and filing the necessary forms with the Registrar of Companies along with payment of fees. It is important to follow all the procedures accurately and comply with the regulations to obtain a Certificate of Incorporation and form a legal entity. By doing so, the company can enjoy the benefits of limited liability, perpetual succession, and easy access to funding, making it a popular form of business in India.
Author Bio
The details are really clear and understandable to all. However, I am of the opinion that the members cannot exceed 200 in a private limited company whereas you have mentioned unlimited shareholders. Please check up and then inform me on my email. It is essential information.