Private Limited Company

A private limited company is a business entity owned by a small group of people. It is registered for pre-defined purposes and is owned by a group called shareholders.

The business entity is recognized as a company by its registration under the Companies Act 2013 in India. The governing body is the Ministry of Corporate Affairs, popularly known as MCA. Section 2 (68) of the Act defines a private company as follows:

Thus, we understand that the shares’ transfer of a private company is limited by certain conditions. In addition, if the number of its members exceeds 200, it ceases to be a private company. It also inherits the prohibition on inviting the public to subscribe for shares. If any of these conditions are not met, the company loses its identity as a private company.

A private limited company has several features, such as the following:

Membership: like any other company, a minimum of two shareholders is required to form such a company. But since it is a small entity, the number of members is also capped at 200. Two directors are also required to run the company;

Private limited structure: In a private limited company, the liability of each member or shareholder is limited. Therefore, even in the event of a loss, shareholders are required to sell their assets to be repaid. However, the shareholders’ personal and individual assets are not at risk;

Separate legal entity: This is a separate legal entity that continues in perpetuity. Therefore, even if all the members die, or if the corporation becomes insolvent or bankrupt, the corporation still exists in the law’s eyes. The life of the company is perpetual and is not affected by the lives of its shareholders or members unless it is dissolved by resolution;

Minimum paid-up capital: a private limited company must have and maintain a minimum paid-up capital of Rs. 1 lakh.

Setting up a limited liability company in India can have some advantages:

➤ The company’s assets are separated from personal assets;
➤ Each shareholder is responsible for his share of the total capital;
➤ Transfer of shares is prohibited;
➤ The authorized number of founders is between 2 and 50 persons;
➤ The issuance of debt securities or securities by individuals is prohibited;
➤ Tax rates are set by the higher values;
➤ The founders are free to make decisions regarding the company’s operation;
➤ The open-end private company is allowed if:
➤ The open type of company owns at least one-quarter of the paid-up capital;
➤ The company is engaged in collecting deposits from individuals;
➤ Average annual sales exceed $2.5 million.

Registering your business online can help you in many ways. Thus, it can serve as a defense mechanism against threats, losses, and personal liabilities. Creating goodwill is another important reason to register your business. Registered businesses are more trustworthy than unregistered businesses. Moreover, it helps you get loans from banks easily for your company. The business also becomes more stable. This makes it easier to develop the business and expand.

In a private limited company, the liability is limited, which means that the company’s members do not risk losing their private assets. If the company fails, the shareholders are required to sell their assets to get paid. Unlike a public company that requires seven shareholders, a private limited company can be formed with only two shareholders. In addition, because the corporation’s shares are owned by the investors, founders, and management, the owners are free to transfer and sell their shares to others. Finally, the corporation remains a legal entity until it is legally closed, so it functions even after the death or departure of one of its members.

A private company can be registered with or without share capital. The type of capital-based company is provided in the capital clause of the company’s MoA;

The members’ liability can be limited or unlimited. Generally, companies are registered with limited liability in India. In the case of shareholding companies, the members’ liability is limited to the unpaid capital of the subscribed shares. In the case of non-shareholding companies, the agreed amount of liability in the form of capital is provided for in the company’s memorandum of understanding;

The single-member company, commonly called OPC, is a type of limited liability company. It is a company registration with only one shareholder. This structure is advantageous to the developer, who does not wish to share ownership rights.

In a private company, a minimum of 2 directors and 2 members is required. All these members have limited liability and the maximum number of members has been increased from 50 to 200.

Registering your company as a private limited company is difficult because the procedure is complicated and involves many formalities. It is important to follow these steps to properly register your company:

Digital signatures are required to file company formation forms. The registration process is completely online, and the forms require a digital signature. Digital signatures are required for all subscribers and witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA). You must obtain digital signature certificates from government-recognized certification authorities.

The DIN is an identification number for a director. It must be obtained by anyone who wishes to become a company director. Only one DIN is required to be a director of several companies.

There are two ways to obtain a DIN:
➤ Option 1: File Form DIR 3. The DIR-3 form applies to a person who wants to become a director in an existing company. This form requires basic information about the proposed director as well as proof of identity and proof of address.
➤ Option 2: By filing the SPICe+ form, DINs are issued to proposed directors who do not have a DIN. Under this SPICe+ filing process (INC 32), up to three directors may apply for a DIN. If the applicant wants to incorporate a company with more than 3 directors and more than 3 people do not have DINs, in such a situation, the applicant must incorporate a company with 3 directors and must appoint new directors later after incorporation.

To obtain name approval, there are the following options:

➤ Option 1: Reserve the name via Part A of the SPICe+ form. To facilitate the procedures for new and existing companies, the Ministry of Corporate Affairs (MCA) has introduced, the SPICe+ web service for company incorporation. The SPICe+ form part A allows “name reservation” with two proposed names and re-submission (RSUB) while reserving unique names for companies. In case the name is rejected due to similarity with a registered company, or trademark or due to non-adherence to the Companies Rules 2014, the applicant must resubmit a SPICe+ form along with the prescribed fee. However, after the name is approved, the name will be reserved for a period of 20 days during which time the company must proceed with incorporation by completing the SPICe+ form part B.

➤ Option 2: Name approval by completing the SPICe+ form Part A and Part B together. You may request approval of the proposed name at the same time as the application for incorporation. The eIPC+ form Part B is used to apply for incorporation. Like the old eIPC form, eIPC+ also allows for a combined application for incorporation and name approval. This means that the eICP+ form Part A and Part B can be submitted together. However, only one name can be applied to this form. In the case of a combined application, in the rejection event due to the name non-approval, the applicant will be given a second chance to complete the same SPICe+ form again at no additional cost. This means that you have two chances to fill the same form without paying an additional fee of Rs. 1000 both times. Resubmission of the SPICe+ form can be done by using the “name requested” or “application number” link available on the user dashboard. If the name is not approved on the first try, you can re-submit the SPICe+ form from scratch. This will always prove to be more economical than choosing the first option. The entire process, including name approval and incorporation, takes approximately 2-3 days.

The Ministry of Corporate Affairs has introduced the SPICe+ form for the new company registration starting on February 23, 2020. The SPICe+ form Part B’s formation is also web-based and simplifies the company’s formation.

Once the name is approved, the applicant can click on the link of the approved name and proceed with the company incorporation. The new SPICe+ form Part B allows for web-based incorporation and serves the following purposes in one application:

The new SPICe+ form facilitates online data entry and real-time validation, making the incorporation process seamless and fast. The information provided in SPICe+ Part A and Part B will be automatically entered into the AGILE-PRO, eAoA, eMoA, URC1, INC-9 forms.
All these forms must be downloaded in PDF format and digitally signed and submitted for incorporation. After completing the SPICe+ form, the user must also download the SPICe+ form in PDF format and affix the CSD to digitally sign the form.
A professional’s digital signature is required to file Form INC-32. The professional must certify that all information given on the form is correct. The professional may be a CPA, corporate secretary, cost accountant, or attorney.

E-MoA refers to an electronic memorandum of association and eAoA to electronic association articles. These forms were introduced to simplify the process of registering companies in India. The memorandum represents the company’s charter while the association’s articles contain the company’s internal rules and regulations. Previously, the memorandum of association and articles of association had to be filed physically. But now, these forms are filed online on the Ministry of Corporate Affairs portal as a form linked to SPICe+ (INC-32). Both these forms need to be digitally signed by the subscribers of the memorandum and association articles.

With this single SPICe+ form, you can also request the company’s PAN and TAN. The system will automatically generate these forms after the SPICe+ form is submitted. The company certificate of incorporation is issued along with the PAN as assigned by the Income Tax Department after approval of the SPICe+ form. An email containing the certificate of incorporation, PAN, and TAN will be sent by the Ministry of Corporate Affairs. The Income Tax Department will issue the PAN card. If all the details in the form are filled in properly and accompanied by the required documents, the Ministry of Corporate Affairs will approve the registration and a CIN (Corporate Identity Number) will be issued. You can also track this CIN online on the Ministry of Corporate Affairs portal.

It should be remembered that each type of company has its own set of requirements before it can be incorporated. The registration requirements for a private limited company in India are as follows:

1. Members and directors: to be legally registered, a private limited company must have a minimum of two and a maximum of 200 members. This is a legal requirement as mandated by the Companies Act, 2013.

2. The directors must meet the following requirements: each of the directors must have a DIN (a director’s identification number), which is given by the Ministry of Corporate Affairs. One of the directors must be a resident of India, which means that he/she must have stayed in India for at least 182 days in the previous calendar year.

3. Company name: Choosing a company name is often a technical task. A private limited company must cover three aspects when deciding on its name:
➤ The primary name;
➤ Business to be conducted;
➤ The words “private limited company” at the end.

4. The registered office’s address: after the registration of the company, the permanent address of its registered office must be filed with the Registrar of the Company. The corporation registered office is the place where the principal business of the corporation is conducted and where all documents are kept.

5. Obtaining other documents: for documents’ electronic submission, each company must obtain a digital signature certificate which is used to verify the authenticity of the documents.

Any person over the age of 18 can be a director of a company. In addition, there is no residency requirement. Foreign nationals can therefore easily set up and manage a limited liability company in India. However, the rules of incorporation in India require that an Indian national be on the company’s directors’ board.

Foreign nationals can be directors of a limited liability company. They must obtain a DIN from the Indian ROC. They can also hold most of the shares in the company. Provided that at least one of the directors of the board of directors is an NRI.

The following documents must be filed with the SPICe (INC-32) for private limited company registration:

Once the company is registered, it must meet certain compliance requirements, namely:
1.Appoint the first auditor within 30 days of registration;
2.It must have at least 4 board meetings per year at specific intervals;
3.It must file an annual profit and loss account, balance sheet, annual return, and auditor’s report with the Registrar of Companies.