Why Private Limited Company
A private limited company is a voluntary association of not less than two and not more than two hundred members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. Its main features are :-
- It has an independent legal existence. The Indian Companies Act,1956 contains the provisions regarding the legal formalities for setting up of a private limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.
- It is relatively less cumbersome to organise and operate it as it has been exempted from many regulations and restrictions to which a public limited company is subjected to. Some of them are :-
- it need not file a prospectus with the Registrar.
- it need not obtain the Certificate for Commencement of business.
- it need not hold the statutory general meeting nor need it file the statutory report.
- The liability of its members is limited.
- The shares allotted to it's members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures.
- It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it.
Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.
Advantages
- Continuity of existence
- Limited liability
- Less legal restrictions
Disadvantages
- Shares are not freely transferable
- Not allowed to invite public to subscribe to its shares
- Scope for promotional fraud
- Undemocratic control
Basic Requirements for Registration
Directors Identification Number(DIN) :-
As per section 153 of the Companies Act 2013, every person who proposes to be the Director of a company must have an 8 digit unique code i.e. Director Identification Number (DIN) registered in his name. DIN once allotted is valid for a lifetime
Digital Signatures Certificates (DSC) :-
As MCA is a digital platform to file various forms and other related documents, thus there is a need to sign such forms digitally. Thus any person/director who is so authorized to sign forms on or behalf of the company shall have his Digital Signature Certificate.
Directors
Director is the person who controls and manages the day to day affair of a company, who acts both as an agent and trustee for a company. Number of Directors in a company shall be Minimum 2 and Maximum 15 in case of Private Limited Company
Promoters/Shareholders
Promoter: Is the person who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise.
Shareholder: Is a person who subscribes to the shares of the company and participates in the profits of the company, also known as member of the company. A private limited company can have a minimum of 2 and maximum of 200 member in a company.
Company Name
Name of the company is the most crucial and important aspect of Incorporation, as it will be the identity of the company. Thus in order to choose the name of the company one should seek the understated checklist.
Things to Check :
- The name shall be unique
- The name shall depict the nature of business activity
Don’ts while proposing name of the company
- Shall not be similar to that of name already registered.
- Shall not be a registered trademark.
- Shall not fall in the category of Emblems and Name (Prevention and Improper Use) Act, 1950.
- In some cases the name so proposed needs prior approval of Stock Exchange Board of India (SEBI), Reserve Bank of India. Thus if proposed name falls under the given category then approval shall be obtained.
Registered Office
The Registered Office of a company is that place which tends to be the official address of the company also where the company so proposes to work and receives formal notices from government departments, investors, banks, shareholders, general public or any other authority.
The Registered Office is required for understated purposes:
- To convene all the shareholders and board meetings
- The Jurisdiction of Registrar of Companies is based on the registered office of the company.
- All the necessary books of accounts and government records are to be maintained at its registered office.
While selecting the place for registered office one should keep in mind:
- Convenience of the Management
- Convenience of the Administration Stamp Duty* so imposed by the jurisdiction over the place of registered office.
* STAMP DUTY IS SUBJECTED TO THE JURISDICTION WHERE THE REGISTERED OFFICE OF THE COMPANY FALLS
Memorandum & Articles of Association
Memorandum of Association is that document of a company which lays down the foundation of the company onto which the company constructs its structure. It has been divided into Six major clauses.
- Name Clause: States the name of the company.
- State/ Situation Clause: States the registered office of the company.
- Object Clause: Describes the objects/ Business activity of the company and are divided into
- Main Objects
- Ancillary Objects
- Other Objects - Liability Clause: States the nature of liability of the members of the company i.e. limited or unlimited.
- Subscription: Details of the subscribers to the memorandum of associations of the company
- Capital: Whether or not company is having share capital.
Articles of Association
The AOA of the company defines its bye laws which helps to regulate the internal affairs and code of conduct of its business. It defines;
- Duties
- Rights and Powers of governing body
- Directors Remuneration
- Procedure of Transfer and Transmission of shares
- Power of the Board of Directors of the company.
Share Capital
The Share Capital of a company is basically divided into three categories
1. Authorised
2. Issued
3. Subscribed
- Authorised Capital: Authorised Capital is the Amount up to which the company can raise funds by way of Share Capital.
- Paid Up Capital: Paid up capital is that part of Authorised Capital which has been allotted to the shareholder.
Process of Registration
a) Minimum Requirements –
- Minimum 2 Directors.
- Minimum 2 Shareholders. Directors can be same as shareholders.
b) Office required for Register Private Limited Company –
Yes, just for Communication purpose need official address of the company which be a residential/Commercial/Industrial Premises.
c) Process Involved in Pvt Ltd. Co Formation -
Step 1. Application for DSC (Digital Signature Certificate)
Step 2. Application for Director Identification Number (DIN) in form DIR-3
Step 3. Search for the Company Name availability
Step 4. Drafting of Memorandum of Association (MOA) & Articles of Association (AOA)
Step 5. Filing of e-forms with RoC (Registrar of Companies)
Step 6. Payment of RoC Fees & Stamp Duty
Step 7. Verification of documents / forms by RoC
Step 8. Issue of Certificate of Incorporation by RoC
d) Time Period to Incorporate a Private Limited Company ?
A Private Limited Company registration can be completed in 30-60 days. The time taken for registration depends on submission of relevant documents by the client and speed of Government Approvals. To ensure speedy registration, it is recommended to choose a unique name for your Company and ensure that you have all the required documents prior to starting the registration process.
e) Initial Documents Required
Documents required for all the Directors:
- ID Proof and Address Proof for all Directors
- PAN Card Mandatory
- Latest utility bill (electric bill/telephone bill) for the property to be used for registered office (notolder than 2 months)
- Latest tax receipt/ownership deep of the property (not older than 2 months)
f) Government Charges and other legal Expenses for Incorporate Private Limited Company ?
- Digital Signature Certificate for 2 Individuals costs around 2000 Rupees.
- DIR 3 form for application for DIN number costs around 1000 Rupees for 2 Directors.
- MOA, AOA, INC 7, INC 29, DIR 12 Costing around 4400 Rupees.
- Stamp Duty according to state wise, costs around 2000 in Karnataka.
g) Professional Charges taken by Professionals
Professional Charges to Incorporate a Pvt Ltd Company vary from from 10000 to 15000 Rupees.
h) Can you register it yourself without help of professional ?
No, you need a professional. During the filing of documents and forms, they need to be authorized by a Chartered Accountant/Company Secretary/Cost Accountant, so their service is necessary.
i) Annual Compliance for Private Limited Company-
- Compliances with Ministry of Corporate Affairs: Companies are annually required to file the Form 23AC & ACA (Audited Statement) and Form 20B (Annual Return) with the Registrar of Companies.
- Companies are required to get the Balance Sheet & Profit & Loss account audited by the Statutory Auditor of the Company. Only a chartered accountant in practice can be appointed as the statutory auditor
- Board of Directors are required to meet, every quarter in a calendar, the meeting can be held anywhere in India
- Shareholder meet once in a year, called as Annual General Meeting, to approve the balance sheet and profit & loss account of the Company. This meeting can be held only in the same city or town, where the registered office is situated
- The effective rate of Taxation for Corporate entities is 30.90% to be paid on the amount of Profit.
- In additon, in case of Dividend Distribution, Companies have to pay Dividend Distribution Tax.
- Statutory Registers are required to maintain like Register of Members / Directors / Director Shareholding / Contracts / Common seal / Charge / Investments / Deposits.
j) Why Private Limited Company Adopted by Startups ?
- Private Investments: Generally, when any business idea clicks, it needs funds to grow, private company is the best option for this to raise the funds from the Investors.
- High Borrowing Capacity: In compare to other forms, more preference is given to private limited company in giving loan from Banks.
- Separate Legal Identity: A private limited company is a legal entity and a juristic person
established under the Act. - Limited Liability: Members personal assets are safe. Liability of company is limited to the assets of the same.
- Share Transfer: By following compliances in private limited company a shareholder can easily transfers its shares.
- Perpetual Succession: An incorporated company has perpetual succession. Perpetual Succession means the company shall continue to exist even if the member dies or ceases, etc. Changes within the management does not bring any affect onto the identity of the company, the Company will remain the same with same privileges, immunities, estates and possessions. The Company shall continue to exist till its wound up in accordance with the provisions of the relevant law.
- Separate Property: A Company as a legal entity is capable of owning its funds and other The Company is the real person in whose hands all the property is vested and such company has the sole right to control, manage and dispose off the property so vested in the hands of the company. The property of Company is not the property of its shareholders.
- Selling the Business: It is easy to sell business for a company than any other business form.As business Corporation value will be based on the business, not the owner, therefore making it easy to sell the Company.
- Capacity to sue: As a juristic legal person, A Company can sue in its name and be sued by
- Better Governed: Companies are governed by The Companies Act, 2013 and have to follow various other regulatory procedures during the course of its governance, moreover they have to comply with the stringent disclosure norms so imposed by the authority, which let to better governed organizations and creation of value for owners.