Registration of a Private Limited Company

A Private Limited Company is one of the most popular business entities for businesses in India. A private limited company is a company privately held for small businesses. A Private Limited Company can be started with a minimum of two members and a maximum of fifty members. It is a separate legal entity and its directors have limited liability. In a case of default, banks/creditors can only sell the company’s assets but not the personal assets of directors. 

Table of Contents:

1. Benefits of a Private Limited Company in India

2. Disadvantages of a Private Limited Company

3. Characteristics of a Private Limited Company

4. Difference between a Partnership and a Private Limited Company

5. Is a private limited company better than a Partnership?

6. Procedure for Registering a Private Limited Company

7. Documents required for filing SPICe (INC-32)

8. What is the Time required to register a company?

Benefits of a Private Limited Company in India

• Limited Risk: The shareholders have limited liability which means that the shareholder will be liable to pay for the company’s liability only to the extent of the contribution made by him/her.

• Separate Legal Entity: A company is a Separate Legal Entity as distinct from its members. The company is responsible for the management of its assets and liabilities, debtors and creditors. And you are not personally responsible for it. So, the creditors cannot proceed against you to recover the money.

• Trustworthiness: Companies in India are registered with the Registrar of Companies under the Companies Act 2013. This form of business structure is trusted more than the other forms as anyone can check the details of the company through the Ministry of Corporate Affairs (MCA) and know about it. 

• Perpetual Succession: The company remains existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. The life of the company keeps on existing forever until it is legally dissolved.

Disadvantages of a Private Limited Company

• Compliance Formalities: A range of compliances are required to be followed post-incorporation of a Private Limited Company like all companies are required to hold board meetings, general meetings, get the accounts audited, maintain a statutory register and file an annual return with the Ministry of Corporate Affairs each year.

• Getting Paid: The director or owner cannot remove the money from a limited company like a sole trader who can take cash out of a business without restriction. There is a more complicated procedure in case of a Private Limited Company. The business has to legally transfer money to you in the form of a salary or dividend payment which means you can’t just use the company as a personal income source.

• Registration Process: The Registration Process can sometimes prove to be riotous or hectic if the directions or rules and regulations of the MCA are not clear.

• Restricted Shareholders: In a Private Limited Company the number of investors or individuals can’t surpass more than 50.

Consult: Expert Startup Lawyers Online

Characteristics of a Private Limited Company

• Members: To start a company, a minimum number of 2 members are required and a maximum number of 200 members can be there.

• Limited Liability: The shareholders have limited liability which means that the shareholder will be liable to pay for the company’s liability only to the extent of the contribution made by him.

• Perpetual succession: The Company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. The life of the company keeps on existing forever until it is legally dissolved.

• Number of directors: Minimum two Directors are required in case of Private Limited Company.

• Paid-up capital: Minimum paid-up capital of Rs. 1 lakh or such higher amount is required, which may be prescribed from time to time.

• Name: It is mandatory for all the private companies to use the word private limited after their name.

Difference between a Partnership and a Private Limited Company

• Definition: A partnership is an agreement between two or more persons who come together to carry out business activity and share the outcome of this activity among themselves. A company is an artificial person having a separate identity, common seal and perpetual succession which is formed and governed by law.

• Registration: The registration of the partnership firm is not compulsory whereas a Private Limited Company needs to get compulsory registered with the Registrar of Companies.

• Capital: No minimum capital requirement is there for starting a partnership firm while the minimum capital requirements for a private company it is Rs. 1 lakh.

• Regulator: The Partnership Firm is regulated by the Registrar of Firms of the State Government whereas a Private Limited Company is regulated by the Registrar of Companies of the Central Government.  

• Winding Up: A partnership firm can be dissolved easily by following a simple procedure by any one or all of the partners while in case of a Private Limited Company, the winding-up procedure is complicated, time consuming and costly.

• Liability: In the Partnership Firm, a liability of the partners is unlimited whereas in the case of a Private Limited Company Liability is limited to the extent of shares held by every member.

Is a private limited company better than a Partnership?

You can choose either of the two business structures according to your needs by looking at their pros and cons, mentioned above. But a Private Limited Company is always better and the most popular business form. As it has a limited liability attached to it and acts as a separate legal entity. The owner is not personally liable for any kind of liability. It creates a hidden protected wall between the company and its owner and protects him from any kind of liability. 

Procedure for Registering a Private Limited Company

Registering a private limited company is difficult as the procedure is complicated and involves much compliance. In order to register your company, you need to follow the following steps:

Step 1: Obtain DSC (Digital Signature) 

The registration process is online and the forms require a digital signature. You can obtain a digital signature certificate[1] from any government-recognised certifying agencies. 

Step 2: Apply for DIN (Director Identification Number) 

DIN is a unique identification number for a director assigned by the Ministry of Corporate Affairs. This DIN number is allotted for a lifetime unless it is surrendered or withdrawn. 

New Company: Any applicant intending to become a director in a new company needs to apply for the allotment of Director Identification Number through SPICe e-form[2] at the time of incorporation of the company.

Existing Company: Any applicant intending to become a director in an existing company needs to make an application in e-form DIR-3 for allotment of DIN. 

Step 3: Name Approval

To get the name approval, there are the following options:

Option 1: Incorporating a Company via RUN (Reserve Unique Name) form[3]. RUN is a simple and easy to use portal for reserving a name for a new company or for change of name for any existing company. The names given should be in adherence to the companies (Incorporation Rules) 2014. The applicant needs to be sure of the proposed name and should follow name availability guidelines, existing trademarks to avoid rejection. In case of rejection, the applicant has to re-file another RUN form with the prescribed fee. However, with effect from March 23, 2018, Ministry has decided to permit two proposed Names and one re-submission (RSUB) while reserving Unique Names for the Companies.

Option 2: You can apply for the proposed name through SPICe(INC-32). In case of rejection due to non-approval of the name, unlike the RUN, the applicant will get a second chance of refilling the same SPICe form without any further charges. It means you get two chances of filing the same form without any extra charge of paying Rs. 1000/-.

In case of failure to get the name approved in the second chance also, you need to file the SPICe form again from scratch. The whole process of name approval and incorporation can take around 2-3 days.

Step 4: Form SPICe (INC-32) 

Ministry of Company Affairs has introduced Form SPICe (INC-32), which is a simplified proforma for incorporating a company electronically. It serves the following purposes with the benefit of a single application:

• Application for allotment of DIN (Director Identification Number)

• Reservation of company name

• Incorporation of a new company

• Application for PAN[4] and TAN

Prior to May 2015, the registration of companies required the filling up of several documents[5], such as the DIR–3 for acquiring the DIN (Director Identification Number), INC-1 for obtaining a name, INC–7 for registering the company with the Memorandum and Articles of Association, INC–22 for the registered office and finally, Form DIR-12 for the directors. Now, all of these forms have been merged together.

Also the new process of Name Approval “RUN” notified and e-form INC-1 omitted. INC-7 form omitted. The only way for the incorporation of company is SPICE. No ROC fees required for Incorporation of Company up to 10 lack of authorized capital.

Step 5: E-MoA(INC-33) and E-AoA (INC-34) 

E-MoA refers to an electronic Memorandum of Association and E-AoA is electronic Articles of Association. These forms have been introduced to simplify the process of company registration.

Memorandum of Association of a company represents its charter while articles of association contain the internal rules and regulations of the company.

Earlier Memorandum of Association and Articles of Association were required to be filed and submitted physically. But now these are filed online using the MCA portal as a linked form with SPICe (INC-32). Both these forms must be digitally signed by subscribers to the Memorandum and Articles of Association.

Step 6: PAN and TAN Application 

Through SPICe, you can now also apply for company’s PAN and TAN by simply filling forms 49A for PAN[6] and 49B for TAN[7]. The system will auto-generate these forms after the submission of SPICe form. All needs to only download it, affix digital signatures and upload both forms on the MCA portal. All the details in the form will be checked along with the required documents, then the MCA will approve the registration and a CIN (Corporate Identity Number) will be allocated. You can also track this CIN online on MCA portal.

Top Read: Company and Business Law in India

Documents required for filing SPICe (INC-32)

The following documents must be filed with SPICe (INC-32) for the incorporation of a company:

A. Where director and subscriber are Indian Nationals

• An Affidavit on a stamp paper is to be given by all the subscribers of the company to state their willingness to become the shareholders of the company.

• Proof of office address – Rental Agreement

• Copies of utility bills that are not older than two months

• Copy of approval in case the proposed name of the company contains any word(s) or expression(s) that require approval from central government

• If the proposed name is based on a registered trademark or is the subject matter of an application pending for registration under the Trade Marks Act, then it is mandatory to attach the trademark registration certificate or trademark application copy

• NOC from the owner of the property

• In the case of subscribers/ Director does not have a DIN, it is mandatory to attach, proof of identity and address proof of the subscribers

B. Where director/subscriber is a Foreign National

• Passport

• Address Proof: It can be driving license, residence card, bank statement, Government issued the form of identification containing an address

• Registered Office Proof: It can be a registered document which shows the title of the premises in the name of the company or notarized copy of lease deed or rental agreement

What is the Time required to register a company?

The whole process of incorporating a Private Limited Company including approval of DIN, Name, and Incorporation, takes around 7 working days. Nowadays registering a Company has become a fast process as the process has been made online and the government has focused to provide a single-window for the whole process. It is a big step towards e-governance and for businesses that are looking for expansion of operations.

External Links:

[1] Register Digital Signature Certificate: Ministry of Corporate Affairs, Govt. of India

[2] Apply DIN: For allotment of Director Identification Number through SPICe eform

[3] Reserve Unique Name: To check and reserve a company name

[4] Online PAN Application: To apply for permanent account number

[5] Company Registration: List of documents required to download for company registration

[6] Form No. 49A: Application for allotment of permanent account number

[7] Form No. 49B: Application for allotment of tax deduction and collection account number

Written by: Utkarsh Sharma