Private Limited Company Incorporation process

PRIVATE LIMITED COMPANY

Under section 2 (68) of company act, 2013 Private company mean company incorporated under company’s act 2013 having paid-up share capital as may be prescribed, and which by its articles, —

1. Restricts the right to transfer its shares:

2. Except in case of OPC, limits the number of its member to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of this clause, be treated as a single member:

Provided further that-

• A person who is in the employment of the company
• persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and

3. Prohibits any invitation to the public to subscribe for any securities of the company

It is a form of business which is came into existence through the company’s act. It is the form of business having separate legal entities form its promoter just like another form of company.  The main advantage of a Private limited form of company is that the financial liability of a shareholder is limited to their shares.

Out total incorporation in India, 93% of the company which incorporates in India is in form of a private limited company, because of its easy to form and easy to dissolve and has less compliance as per the provision of law as compared to the public limited or listed company.

Benefits of Private limited company

• Distinct Identity

An entity means something that has a true existence; an object with a distinct existence. A company is a legal entity and a legal entity established under the Law. Hence a company is a form of the organization having broad legal potential and that may own property and also incur debts in its own name. The members of the company have no liability towards company debts because the company and members both are the separate people in the eye of the law, hence company is an artificial person having a separate legal identity.

• Liability is Limited

Limited Liability means the status of being legally responsible for a company’s debts only to a limited sum. Like proprietorships and partnerships, the Member’s responsibility for the company’s debts is limited in a limited liability company. In other words, the responsibility of a company’s members is limited only to the sum of the face value of the shares they take over.

• Acquiring property

A company may buy, possess, enjoy and alienate property under its own name, becoming a legal individual. No shareholder can claim the company’s property as long as the company is a company. The shareholders are not the actual owners of the company. The company itself is the real proprietor.

• Capacity to sue and be sued in its own name

To sue means initiating legal action against or putting a suit before a court of law. Just like one person in the name of another person can bring legal action against another in his / her own name, a company being an independent legal entity can sue and be sued in his / her own name too.

• Perpetual Succession

The private limited company, being a separate legal entity in the eyes of law, is known by its name. Thus, director/member cessation/death does not affect the Private Limited Company’s existence. Members may come and members will leave but the company goes forever.

• Easy Funding

A private limited company can raise funds from its member after issuing shares to them or issuing debt securities to them. And the private limited company has the opportunity to convert itself into public limited after which it can raise money from the general public at large after listing its shares in the stock exchange and taking IPO in the market.

• Business credibility

If a business is established as a proprietorship or partnership, it is not registered with the Ministry of Corporate Affairs and can not be found in the databases of the online company or LLP. Often there is no reliable evidence of the existence of the company, making it difficult to open a bank account, acquire trustworthy clients, or receive credit from vendors.

• Easy entry &Exist

A private limited company is easy way to get into the corporate market, only you need to get register your form of the company under the ministry of corporate affairs and obtain the certificate of incorporation and it has easy existed option too if you want to shut down your business you only need to inform to ministry through required form and you take exist legally after settling your liability.

• No Minimum Capital Required

As per the point of view of incorporation, there is no minimum capital required for incorporating a private limited company. As per company law 2013, you can start a private limited company with 0 paid-up capital.

Disadvantages of Private Limited Companies

• Prohibition on the invitation of the public for investment

A private limited company can not invite the public at large for making the investment in the company, apart from its member no person is allowed to make the investment in the company. It is prohibited from company law 2013.

• Transferability of shares

In a private limited company person, a shareholder cannot transfer its share to the general public (non-member) unless it is approved by the board of the company. Under the private limited company, the share firstly transfers to its member if they refuse to accept then only it can be transferred to the third person, this restriction is imposed by law.

Why Private limited company:

1. Easy way to jump in the corporate world

Private Limited Company form of business is an easy and simple way to get into the corporate world and it is an easy way for a good start-up.  As compare to Sole Proprietorship, it is a better option for the start-up as in this form of business liability of the member is limited. It is a good platform for incorporating a company form of business having ownership.

2. Business credibility

If a business is established as a proprietorship or partnership, it is not registered with the Ministry of Corporate Affairs and cannot be found in the databases of the online company or LLP. Often there is no reliable evidence of the existence of the company, making it difficult to open a bank account, acquire trustworthy clients, or receive credit from vendors.

3. No Minimum Capital Required

As per the point of view of incorporation, there is no minimum capital required for incorporating a private limited company. As per company law 2013, you can start a private limited company with 0 paid-up capital. Whereas if you want to incorporate a public limited company you need to have 5 Lakh as minimum paid-up capital

4. Liability is Limited

Limited Liability means the status of being legally responsible for a company’s debts only to a limited sum. Like proprietorships and partnerships, the Member’s responsibility for the company’s debts is limited in a limited liability company. In other words, the responsibility of a company’s members is limited only to the sum of the face value of the shares they take over.

Documents required for Incorporating Private Limited Company is as follow:

• PAN card
• Aadhar card
• Photograph of proposed directors

1. ID proof of proposed Directors and members (anyone):

• Passport
• Voter’s ID
• Driving License

2. Address proof of proposed members and directors (anyone):

• Telephone bill
• Mobile Bill
• Bank statement
• Electricity bill

3. Address proof for the principal place of business of the proposed company (anyone)

• Utility bill like telephone bill, electricity bill, gas bill, water bill
• Rent agreement with rent slip
• Proof of ownership (registry documents)

Private Limited Company incorporation process:

Step 1. Search for appropriate name of the proposed company

Step 2. Apply for name reservation

The first step in incorporating a company is for reserving the name of the proposed company in part-A of SPICe Plus (SPICe+) form. In this form choose your business activity and file for two proposed names, if CRC will reject the proposed name then file again with two new names within a certain time limit from the date of rejection (15 days).

Step 3. Apply for DSC

The next step is to apply for DSC (Digital Signature Certificate) which will be used for signing the forms by proposed directors and proposed members respectively. Procure DSC for both proposed directors and member, if both are different.

Step 4. Fill the SPICe plus Form (SPICe+)

Once, your name gets reserved under it will be valid for 20 days from the date of approval, within 20 days you have to fill-up the form and upload it online.  SPICe+ is advanced form combination of 8 forms in one. Through this proposed company can apply for at once:

• Name reservation
• Incorporation
• Apply for DIN
• TAN
• PAN
• EPFO
• ESIC
• GSTIN

Next step is to fill the part-B of SPICe + which will contain all the detail related to incorporating company like number total number of directors and members, Authorized share capital, paid-up capital, number of share hold by members, company registered address detail, directors and member detail and will required attachments for proof. Then draft the MOA (memorandum of association) and AOA (Article of Association) of the proposed company, then fill form required for EPFO and ESIC registration with detail, then Fill the AGILE form for procuring GSTIN. After filling all these attach the signature and then upload it on the MCA website.

Step 5. Grant of Certificate of Incorporation

Once the file is submitted in on the MCA portal, it will be scrutinized by the officer and if the form is proper and then certificate of incorporation will be granted, if not then MCA officer will raise a query for the additional information or documents for the incorporation process.

Compliances of Private Limited Company as per companies act 2013.

Applicable Taxes to Private Limited Companies

Comparison between different forms of company

Business Activity Code as per MCA