Private Limited Company Registration

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What is a Private Limited Company?

A private limited company is a business entity that is privately held by the shareholders. It limits the owner’s liability to the shares they hold and also restricts the maximum number of shareholders to 50. It also restricts the shareholders of the company from publicly trading the shares

Why do start-ups prefer Private Limited?

Growing companies and start-ups go for ‘Pvt Ltd’ type of business because it enables them to opt-in very easily for funding from outside the organization. In addition to this, this form of business restricts the shareholders’ liabilities and this enables the organization to offer ESOP (Employee stock option plan). ESOPs help the owners of the company in recruiting the top talent. They are considered to be more credible than a general partnership firm or Limited Liability Partnership or LLP because they have to mandatorily file their returns with MCA and conduct regular board meetings. 

To whom it is suitable?

‘Private Limited’ type of a business is more suitable for a group of entrepreneurs or business partners who share formal business relation and are willing to get into a very formal and extremely organised business model. It is also suitable for the existing entrepreneurs who are planning to have external funding in their venture or start-up.

Features of a Private Limited Company:

  1. Enables business funding:

Organizations that require investments either to expand or to carry on their operations need to be a private Limited Company as then they can get funded by venture capitalists. This is because its only in private limited companies where the investors can be made shareholders and offer them a place on the board of directors. If the only intent of the company is getting funding, this single point is sufficient to make the decisions. 

  1. Limited Liability

In a private limited company, only the initial capital invested by the owners will be lost and their personal property won’t be affected at the time of repayment of debts. Whereas, in the general partnership structure, partners cannot use the business capital to fulfil their outstanding liabilities and they have to sell off their personal property or assets. Therefore, a private limited company has limited liability on the shoulders of the directors/ 

  1. Start-up Cost

The start-up cost is the initial cost that the entrepreneurs have to incur in order to start the business. This cost isn’t the same throughout the country and thus varies from state to state. The least cost to establish a private limited company is approximately Rs. 8000 but this doesn’t include professional fees. Some states like Kerala, Punjab and Madhya Pradesh, have a higher incidence of cost. Every beginner does need a paid-up capital of minimum Rs. 5000 to start. The annual costs for complying all the industry regulations is around Rs. 13,000

  1. Requires Greater Compliance

Private Limited Company do come up with some mandatory norms. It has to get the financial reports audited, regular quarterly board meetings and submitting its MoM, annual filing with the Registrar of Companies, annually submitting IT returns. All these pre-requisites are important for the organization to get itself registered as a Private Limited Company. 

  1. Few Tax Advantages

The private limited company has some tax advantages, but it varies from industry to industry. It is mandatory for every Private Limited Company to pay a flat tax rate of 305 on the profits earned each year. dividend distribution tax (DDT) is also applied which is same as Minimum Alternate Tax (MAT).  If a businessman is thinking to save taxes, LLP is abetter option as compared to Private Limited Company. 

Benefits of Private Limited Company

  1. The shareholders’ liability is limited to the extent of the capital invested by them.
  1. A public Limited Company has is a separate legal entity from its owners. So, the creditors cannot go against the owners to get their money back. 
  1. Business Continuity prevails as the company undergoes permanent succession. The shareholders are the agents of the company and on their discontinuity from the business, the company won’t stop to exist. 
  1. Raising Funds is much easier in a Private Limited Company because the shareholders can raise money through equity without extending their extent of liability. 
  1. Private Limited Company is registered under the Companies Act and all its details can be checked by anyone, this benefit helps in establishing a trust in the market. 
  1. Tax Advantages exist in Private Limited Company because they have to pay corporate tax on their income and not tax as per slab rates which saves a lot of amount of the company.

Process for Private Limited Company Registration 

Step 1: Obtaining Digital Signatures (DSC) 

A DSC is a safe digital key which is given or issued by the government authorized certifying authorities to validate and certify the identity of the owner of this certificate. They are required to complete the company registration forms because all these processes are online digital signatures are required. It is mandatory for all the witnesses and subscribers in the MoA and AoA of the organization.

DSCs are issued in two categories i.e. Class- 2 or Class- 3 categories and the individual have to get in any one of the categories. In Class- 2 category, the person’s identity is verified as per a pre-verified or existing database whereas, in Class- 3 category, the person has to be physically present himself or herself before registering authority in order to prove his or her identity.

Step 2: Applying for Director’s Identification Number (DIN)

DIN needs to be obtained by anyone who desires to be a Director of that company. A person has to obtain only one DIN and then can be a director in any number of companies.

Step 3: Name Approval

To get name approval an individual has two options available:

Option 1:  Filling up INC- 32 (Incorporating Company) form. In this the only constraint is that only a single name can be given. It suggests that the chosen or proposed name should follow the name availability rules or guidelines, take care of the existing name trademarks to avoid the name rejection.

Option 2: INC 1 can be filled prior to INC 32 and in this form 6 names can be given. The chosen name’s SRN number can be put in INC 32 and it is then approved by the regulatory authorities.

Filing up the name via INC -32 is a faster process than taking up INC-1 process. This whole procedure of name approval and its incorporation takes almost 2–3 working days.

Step 4: Form INC-32

INC 32 is a simplified electronic platform introduced by Ministry of Corporate Affairs to facilitate the company’s incorporation process. The various forms like DIR 3, INC 22, DIR 12 have been merged together. This form requires a digital signature of the professional to certify every information provided in the form is absolutely correct. This professional has to be at least one of the following:

  • Chartered Accountant
  • Company Secretary
  • Cost Accountant
  • Advocate.
Step 5: INC-33 and INC-34

To simplify the company registration process in India INC 33 and INC 34 has been introduced on the online portal of MCA as a linked form with INC 32. INC- 33 is an e-MoM and INC- 34 is an e-AoA. Both these forms have to be duly signed by the subscribers of these two documents of the organization. Memorandum is known as the charter of the organization whereas the articles of association consists f all the internal rules and regulations of that organization.

 Step 6: PAN and TAN Application

INC- 32 when is duly filled by the applicant then, PAN and TAN of the company can also be applied for by filling forms 49A for applying for PAN and 49B for applying for TAN. Once, INC 32 is duly submitted, the system will auto-generate both of these forms for the applicant on the MCA portal. The next step is to download them, affix the digital signature on it and then again submit both on MCA portal. After submission, it will be approved by MCA and if the details are correct a CIN (Corporate Identity Number) will be given and this can be tracked via MCA’s online portal. 

Documents Required To Register Private Limited Company

In getting a company registered there are some documents that every company has to submit and they are as follows:

  • PAN Application
  • TAN Registration
  • Filing of various e-forms with the ROC
  • Director Identification Numbers (DIN) (2 nos.)
  • Digital Signature Certificates (DSC) (2 nos.)
  • Name approval filled in INC- 1that also includes a re-submission
  • Drafting the Articles of Association (AOA) & Memorandum of Association (MOA)
  • Issue of Certificate of Incorporation
  • Includes Government Fees & Stamp duty of an amount of Rs. 1 Lakh Authorized Capital

The entire registration process includes Name, DIN and Incorporation approval which takes a time period of 3 to 4 days. Apart from the various other procedures involved are: 

  • Approval of name filled in form INC-1: 6 to 7 days
  • Allotment of DIN through filling of Form-DIR-3: 1 to 2 days
  • Incorporation of Company through INC-7 and INC-22: 7 to 10 days

Hence, it can be inferred that the whole registration process of a Private Limited Company takes 15-20 days. 

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