How to Register a Private Limited Company in India
Well over 1.2 million Private Limited Companies are currently operating in India – a number that is more than twice the number of public limited companies present in the same market. This overwhelming popularity of Private Limited Companies is no accident. A Limited Company, according to the Indian Companies Act, 2013, is a company in which the personal liabilities of the owners are limited by their initial stakes. When these stakes are owned by private individuals the resulting company, becomes a Private Limited Company.
What is a Private limited company?
Usually, members of a company, once the company has been registered in India, own capital in the company in varying amounts of equally divided shares. Hence, these members are also called shareholders. By limiting the amount of risk the business is exposed to, you can protect your individual financial assets from debt. A Private Limited Company gives you quick access to credit from banks and other financial institutions. There are relatively few compliance requirements under the law and entrepreneurs are free to maneuver according to pressing business needs.
Quick Checklist for Private Limited Company Registration in India
- Check your company name on the MCA portal
- At least 2 Directors required including one India Resident + At least 2 Shareholders
- File SPICe+ form
- Obtain DSC
- Obtain DIN
- Obtain Certificate of Incorporation, PAN, TAN
- Proof of Registered Office
Advantages of private limited company registration
The shares of a Private Limited Company are not sold publicly. They are sold privately to other people according to the owner’s choice. The shares are generally owned by founders or private investors. This results in less complexity and smooth functioning as there are fewer shareholders.
2. Legal formalities
Private limited companies have a relatively fewer legal formalities which reduces the cost of registration.
3. Company Information
These companies are not required to disclose any company information to the general public which means tighter security for internal documents and trade secrets. Business information remains confidential which is a good sign for any company.
4. Stock market
There is no pressure from the stock market in day-to-day operations of private companies as they are not affected by the price of their shares. Company executives can play multiple roles as shareholders, thus reducing conflict.
Types of Private Limited Companies
Company Limited by Shares
In this type, the liability of the members is limited to the share amount that they own within the company. To be specific, their future liability is limited to the unpaid share capital that they own in the company.
Company Limited by Guarantee
In this company type, the members give guarantees to be held liable. The liability of the members is limited to the amount of liability each member undertakes in the Memorandum of Association. The members cannot be held accountable for an amount more than their guarantee to the company. This type is generally adopted by clubs, societies, or trade associations, where the organization requires minimal capital or working capital funds.
Unlimited Liability Company
In this type, there are no restrictions on the member’s liability. The liability of members is unlimited which means the personal assets of the members can be utilized to pay off the company’s liabilities or debts. But, the company still has a separate legal identity.
What You Need to Know about a Private Limited Company
1. Name of the Company
It is mandatory for all private companies to put the phrase ‘Private Limited’ after their company’s name.
According to the Companies Act, 2013 – a minimum of 2 members and a maximum of 200 members are allowed to start a PLC.
3. Limited Liability
The liability of each member or shareholder is limited which means that the shareholders are responsible for selling their assets to pay off the company’s losses or liabilities. However, the personal individual assets of the shareholders are not at risk.
4. Perpetual succession and a separate legal entity
It has a separate legal entity which means that the company and members are different in the eyes of law. The company keeps on existing even if there is any death, insolvency or bankrupt of any member. The company keep on continuing and run its operation which leads to perpetual succession of the company.
The company needs to have a minimum 2 and maximum of 15 directors. A company can start its operation once there are two directors appointed in the company.
6. Paid-up capital
The minimum paid-up capital required is rupees 1 lakh. It may be increased from time to time depending upon the company.
It is a detailed statement of the company affairs which is issued for the general public. It includes all the business information related to the company.
Procedure to register a Private Limited Company
Step 1- Apply for Digital Signature Certificate (DSC)
It is the first step required in registering a private company. It requires filling a form on the online portal of the Ministry of Corporate Affairs (MCA). DSC is issued by the certifying authority and is valid for up to 6 months.
Step 2- Obtain Director Identification Number (DIN)
It is a number assigned by the Ministry of Corporate Affairs to the applicant applying for DIN. It is obtained for the directors of the company. It is mandatory to obtain DIN so that the company can appoint directors.
Step 3- Name of company
The name of the company must be decided and registered. It can be done by filling an e -form INC. In an application, the applicant is supposed to mention the 6 names of the company according to their preferences. The registrar will then approve any one name after checking the availability and other criteria. The name of the company will remain fixed for over a period of 60 days once the registrar approves the name.
Step 4- Obtain Certificate of Incorporation
The next step is to file Memorandum of Association (MOA) and Article of Association (AOA) to get the incorporation certificate. It will include the incorporation date and PAN number of the company.
Step 5- Get PAN and TAN applications
The Ministry of Corporate Affairs (MCA) will provide PAN and TAN applications once the applicant gets the incorporation certificate.
Step 6- Open a current bank account on the company name.
A current account need to be register on behalf of the company name.
Documents Required to Register a Private Limited Company
- Passport size photograph of the applicant
- ID proof- Passport and PAN card
- Residence proof- Electricity bill of the premise or rental agreement (if on rent)
- Residence proof- Electricity bill of the premise or rental agreement (if on rent)
- NOC from the property owner
- A copy of sale deed or property deed
Cons of a Private Limited Company
Limited number of members
The number of members cannot be more than 200. This could limit your options in expanding the scale of your business, especially if you’re trying to sell to a market of a hundred million consumers.
A private limited company restricts the transferability of shares by its articles. It cannot sell its shares to the general public.
It need not reveal the company prospectus to the general public. This could foster distrust and conflict with customers, vendors, or the authorities.
Conflict between Stakeholders
Companies have a history of conflict between shareholders and the executive. India is no different. However, seamless communication infrastructure and hiring the right people to helm your India operations can help mitigate this problem to quite an extent.
Possibility of Dissolution
PLCs could end up in failure for a variety of reasons in India, including lack of oversight. For parent companies outside India, managing India operations smoothly requires something more than performance-based evaluation. Check in with an India-based consultant to learn what the best practices for this region, in managing a wholly-owned subsidiary are.
In these types of companies, the shareholders are the owners and the Directors are the managers of the company.
The maximum limit of members in a private limited company is 200.
It is mandatory for all types of business firms whether a public company or a private company to pay GST.
To become a shareholder in the private company, contact the company directly with an offer to invest.
Yes, a private limited company has a separate legal entity which means the members and the company are separate persons in the eyes of law.
Companies like Flipkart, Ola, and Snapdeal are a few examples of private limited companies.
By convention, the term, ‘Pvt Ltd’, appears as a suffix that follows the company name, indicating that it is a private limited company.
Azhar Ansari is a company formation specialist with 8+ years of expertise in international business. Financial planning, risk management, and other related areas.