info_spji@spjp.in
Private Limited Company
A private limited company is a type of business entity where ownership is limited to a small group of shareholders, and its shares cannot be publicly traded. Shareholder liability is confined to their investment in the company, and the company can have up to 200 shareholders. The company’s registration and operations are regulated by the Register of Companies (ROC). For incorporation, directors must submit their Director Identification Number (DIN) and Digital Signature Certificate (DSC). Additionally, documents such as the Memorandum of Association (MoA) and Articles of Association (AoA) must be submitted through the MCA portal. After registration, the Ministry of Corporate Affairs (MCA) issues an incorporation certificate and displays the company’s details on its website.
Advantages of Registering as a Private Limited Company
Flexible Management Structure One of the key benefits of a private limited company is its flexible management structure, allowing for efficient and adaptable governance. Perpetual Succession A private limited company enjoys perpetual succession, meaning it continues to exist indefinitely until it is legally dissolved, ensuring stability and continuity. Additional Benefits Here are some other advantages of registering as a private limited company:
Limited Liability Protection
Restricted Legal Liability Shareholders of a private limited company have their legal liability limited, meaning they are only responsible for the company’s debts up to the amount of their investment.
Protection of Personal Assets This structure ensures that personal assets are safeguarded from being used to cover the company’s liabilities.
Separate Legal Entity
Independent Legal Recognition The company is acknowledged as its legal entity, accountable for managing its liabilities and assets independently.
Protection for Directors and Shareholders This status prevents creditors from pursuing the personal assets of directors and shareholders for debt recovery
Perpetual Succession
Continuous operation of a registered private limited company until it is officially dissolved. This concept ensures that the company’s existence remains uninterrupted regardless of any changes in its membership, such as the death of its founders.
Stability The company maintains its legal identity and operations without being affected by the personal circumstances of its members, providing long-term stability and reliability.
Private Limited Company Registration in India
Overview
Establishing a business in India often involves selecting a private limited company as the preferred structure. This option provides shareholders with limited liability protection while imposing specific ownership restrictions. Unlike LLPs, where partners manage the business, private limited companies distinguish between directors and shareholders.
SPJ Infosystem Services
At SPJ Infosystem, we offer an economical service to facilitate smooth private limited company registration in India. We handle all legal formalities, ensuring full compliance with the Ministry of Corporate Affairs (MCA) regulations.
What is a Private Limited Company?
In India, a private limited company is a privately held entity with limited liability, making it one of the most popular business structures due to its numerous advantages. These include limited liability protection, ease of formation and maintenance, and its status as a distinct legal entity. A private limited company requires at least two members and two directors to operate. Here are its key characteristics:
Limited Liability Protection
Shareholders are only liable to the extent of their shareholding, safeguarding their personal assets even if the company faces financial difficulties.
Separate Legal Entity
A private company has its own legal identity, allowing it to own property, enter contracts, and initiate or defend legal actions under its own name.
Minimum Shareholders and Directors
A private company must have at least two shareholders and cannot exceed 200. It also requires at least two directors, with one being an Indian resident.
Minimum Share Capital
The company must have a minimum paid-up capital of Rs. 1 lakh or a higher specified amount.
Firm Name
The company’s name must end with “Private Limited.”
Restrictions on Share Transfer
Shares can only be transferred with the approval of the Board of Directors or as per the company’s Articles of Association.
Prohibition on Public Invitation
Private companies cannot invite the public to subscribe to their shares or debentures.
Compliance Requirements
Private limited companies must adhere to various legal and regulatory obligations, including maintaining financial records, holding annual general meetings, and filing annual returns with the ROC.
Types of Private Limited Companies
- Company Limited by Shares: Liability is limited to the nominal amount of shares.
- Company Limited by Guarantee: Liability is limited to the guarantee amount specified in the Memorandum of Association.
- Unlimited Companies: Members have unlimited personal liability for the company’s debts and liabilities but the company is still a separate legal entity.
Advantages of a Private Limited Company
Limited Liability
Shareholders’ liability is limited to their capital contribution, protecting personal assets from the company’s financial obligations.
Distinct Legal Identity
The company has an independent legal identity, enabling it to own assets, enter contracts, and engage in legal proceedings in its own name.
Continuous Existence
The company’s existence continues regardless of changes in shareholders or directors.
Ease of Funding
Raising capital is easier through share issuance to investors, venture capitalists, or angel investors.
Tax Benefits
Private limited companies may qualify for various tax benefits and exemptions.
Credibility and Trust
Using “Pvt. Ltd.” in the company name often instills more confidence among customers, suppliers, and partners.
Disadvantages of a Private Limited Company
Compliance Burden
Private companies face stringent regulatory demands, including financial reporting, filings, and audits.
Complex Setup
The process and cost for setting up and managing a private limited company are higher than simpler structures.
Share Limits
Share transfer restrictions and a maximum of 200 shareholders can limit flexibility.
Public Disclosure
Financial information is publicly viewable, impacting privacy.
Exit Complexity
Selling or leaving the company is more complicated than with other structures.
Slower Decisions
The involvement of shareholders and directors may slow down decision-making processes.
Requirements for Registering a Company in India
Directors and Members
A minimum of two directors and up to 200 members are required. Directors must have a Director Identification Number (DIN) issued by the MCA, and at least one director must be an Indian resident.
Company Name
The name should reflect the principal activity of the business.
Registered Office Address
The company must provide the permanent address of its registered office where business operations and relevant documentation are maintained.
Company Registration Process
Acquire a Digital Signature Certificate (DSC) Each director and shareholder must obtain a DSC issued by the Controller of Certification Agencies (CCA).
Obtain a Director Identification Number (DIN) Essential for directors and required in the registration form.
Name Reservation (SPICe+ Part A) Complete the SPICe+ Part A form to secure a unique company name.
Submission of Company Details (SPICe+ Part B) Provide detailed information about capital, registered office address, subscribers and directors, stamp duty, PAN and TAN applications, and necessary attachments.
Preparation and Submission of Incorporation Forms (SPICe+ MOA and AOA) Draft and submit the Memorandum of Association (MOA) and Articles of Association (AOA) to the MCA for approval.
Additionally, file the AGILE-PRO-S form to register for GST, EPFO, ESIC, a bank account, and a shop and establishment license if applicable.
Certificate of Incorporation
Upon successful verification, the MCA issues the Certificate of Incorporation (COI) with the Company Identification Number (CIN), PAN, and TAN.
Document Checklist
For Indian Nationals
- Self-attested PAN card copy
- Passport-sized photo
- Aadhaar Card
- Proof of identity and address
For Foreign Nationals
- Notarized documents
- Passport-sized photo
- Passport and address proof
Registered Office Documents
- Proof of business address
- Rent agreement (if applicable)
- Owner’s no objection certificate
Post-Registration Compliance
Adhering to post-registration compliances is essential to streamline company operations and define the roles and responsibilities of directors and shareholders.
Register Your Company through IndiaFilings
SPJ Infosystem specializes in private limited company registration services in India, offering comprehensive guidance and support throughout the registration process. Our team of professionals provides expert consultation tailored to your specific requirements and business goals.
Choosing SPJ Infosystem ensures that your company registration process is managed professionally and effectively, allowing you to focus on your business objectives while we handle the legal requirements. Start your entrepreneurial journey with confidence by registering your company through SPJ Infosystem.
Types of Private Limited Company
- Companies Limited by Shares: These are the most common private limited companies. They have a share capital, and the liability of shareholders is limited to the amount unpaid on their shares.
- Private Companies Limited by Guarantee: These companies do not have share capital. Instead, members agree to contribute a specified amount to the company’s assets if the company is wound up.
- Unlimited Companies: In these companies, there is no limit on the liability of the members, making it a less common option due to the higher risk to its members.
Post-Registration Compliances After Filing of FORM 3
Registered Office Requirement
According to Section 12(1), a company must establish a registered office within 30 days of incorporation. Additionally, PAN and TAN applications should be submitted to register the company under the Income Tax Act, of 1961. All registered private limited companies must meet the following compliance requirements as per MCA guidelines:
Initial Board Meeting
Section 173(1) of the Companies Act 2013 mandates that a registered private limited company must hold its first board of directors meeting within 30 days of incorporation.
Bank Account
Opening a current account in the company’s name for business operations is crucial. Since a company is a legal entity, financial transactions should be conducted in its name, not in the name of an individual.
Official Address
As per Section 12(1) of the Companies Registration Act of 2013, a registered business must have an official address within 30 days of incorporation. This address serves as the contact point for receiving communications from government authorities and must be reported to the registrar within the first 30 days of incorporation.
Branding and Legal Compliance
The registered company name should be displayed at all business locations. The local language should be used on billboards, and seals and letterheads should be prepared accordingly.
Auditor Appointment
The board of directors must appoint an auditor within 30 days of company registration, as required by Section 139(1).
Interest Disclosure and Statutory Compliance
During the first board meeting, all directors must declare their interests in other companies, as per Section 184 of the Companies Act of 2013. Companies are also required to maintain a statutory register at the registered office.
Share Certificate Issuance
Share certificates must be issued to shareholders within 60 days of incorporation or, in the case of additional share allotments, within 60 days of the allotment date.
Bookkeeping and Financial Reporting
Every company must maintain accurate and fair books of accounts, following the double-entry system and accrual basis of accounting, as stipulated in Section 128.
Commencement of Business Certification
A company must obtain a certificate of commencement of business within 180 days. Directors must file a declaration attesting to each subscriber’s payment of the outstanding balance on their shares.
Copyright Registration
For a private limited company, copyright registration is essential to protect original works, such as software, manuals, logos, promotional materials, and other creative content. Our team of IP lawyers can assist with copyright registration and other IP-related issues.
Professional Tax Registration
Professional tax is a state-level tax imposed on professionals and businesses in India. Employers must deduct professional tax from employees’ salaries and remit it to the state government. Tax rates vary by state. Our team of chartered accountants can assist with the registration and filing of professional tax in India.
Comparison Between Private Limited Company and Other Business Structures
Choosing the appropriate company type is critical for registration, as each type possesses distinct characteristics and offers unique advantages to its stakeholders. Below is a comprehensive overview of the various company types:
| Aspect | Proprietorship | Partnership | LLP | Private Limited Company |
|---|---|---|---|---|
| Registration | No formal registration required | Optional registration under the Partnership Act, 1932 | Registered with the Ministry of Corporate Affairs under the LLP Act, 2008 | Registered with the Ministry of Corporate Affairs under the Companies Act, 2013 |
| Name of the Entity | Promoter’s choice; avoid trademarked names | Avoid trademarked names | The name has to end with ‘Limited Liability Partnership’ (LLP). Subject to approval by the Registrar. | The name ends with ‘Private Limited Company’. Subject to approval by the Registrar. |
| Legal Status of Entity | A minimum of two persons is required | Not a separate legal entity; Promoters are personally liable | Separate legal entity; Partners not personally liable for LLP’s liabilities | Separate legal entity. Directors and Shareholders are not personally liable for the Company’s liabilities |
| Member(s) Liability | Unlimited liability for the Proprietor | Unlimited liability for the Partners | Limited liability for Partners, up to their contribution to the LLP | Limited liability for Shareholders, up to their share capital |
| Minimum Number of Members | Can have only one person as a member | Might dissolve due to the death of a Partner | Permitted under the Automatic Approval route in most sectors for foreigners investing in Private Limited Companies | Two persons are required to start a PVT Limited Company |
| Maximum Number of Members | Can have only one person as a member | Maximum of 20 partners | Unlimited number of Partners | A minimum of two members are required |
| Foreign Ownership | Not allowed | Not for foreigners | Need RBI and FIPB approval | A maximum of 200 shareholders or members |
| Transferability | Not transferable | Not transferable | Ownership can be transferred | Ownership can be transferred through share transfer |
| Existence or Survivability | Dependent on the Proprietor’s existence | Partnership profits are taxed at 30% plus surcharge and cess | Not dependent on the Partners’ existence; could be dissolved voluntarily or by an Order of the Company Law Board | Not dependent on Directors or Shareholders; could be dissolved voluntarily or by Regulatory Authorities |
| Taxation | Taxed as an individual based on total income | A minimum of two members is required | LLP profits taxed at 30% plus surcharge and cess | Private Limited Company profits taxed at 30% plus surcharge and cess |
| Annual Statutory Meetings | No requirements | Not required | No annual statutory meeting required | Board and General Meetings must be conducted periodically |
| Annual Filings | No annual report filing requirements; file Income Tax Return based on income | No annual report filing requirements; file Income Tax Return for Partnership | LLP must file an Annual Statement of Accounts & Solvency and Annual Return; file an Income Tax Return | Private Limited Company must file Annual Accounts and Annual Return; file Income Tax Return |