This is the ultimate guide to “How to register a Private Limited Company in India”.
Learn what’s involved in forming a Pvt Ltd company. We really hope you enjoyed this guide on “How to register a Private Limited Company in India“
Know more about Private limited company Characteristics, Advantages, Process, and Documents Requirement.
In this comprehensive guide we’ll cover:
- What is a Private Limited Company?
- Advantages of Private Limited Companies
- Characteristics of Private Limited Company
- Procedure to register Private Limited Company
- Requirements for Private Limited Company Registration
- Documents required for register Private Limited Company
Because of the involvement of various legal formalities, registering a company in India is still considered a tedious task.
Here we will try to discuss the simplest way of private limited company registration in India. So if you want to set up a Private Limited Company in India. Hope you’ll love this guide.
Let’s get started.
Registering a company in India is one of the most important tasks before starting an organization in a legal way whether it’s a start-up, a proprietorship firm, partnership firm, limited liability partnership registration (LLP) private limited company registration, or limited company.
A business should get incorporated based on its organizational structure, nature of the business, and its fiscal status.
A private limited company is a company that is privately held for organizations. In Pvt Ltd Company, Shares cannot be publically traded.
The member’s liability of a Private Limited Company is limited to the number of shares respectively held by them. All the aspects are discussed in the article.
A private limited company governed by the Ministry of Corporate Affairs (MCA) and is incorporated under the Companies Act of 2013.
It provides business a separate legal identity from its owners. It is a registered corporate structure. Hence, providing key benefits is like the ability to contract in its own name and safeguard the owner’s personal assets from business liabilities.
What is a Private Limited Company?
“Company” is a type of privately held small business entity that is separately taxable for accountable or income. A Registration is one that has separate legal entities following the regular succession.
The benefit of having a private limited company is that it is a separate legal entity with a benefit of limited liability for its shareholders.
The Pvt Ltd companies have a limited number of employees which normally is 50, limits owner liability to their shares, and restricts shareholders from publicly trading shares.
The Main benefit of owning a Pvt Ltd company is that the shareholder’s financial liability is limited to their shares. Therefore, if a company had to close or in financial trouble, shareholders would not risk losing their assets.
Unlike proprietorship firm or being in a partnership, a Pvt Ltd company is a legal entity in its own right. It has more complex requirements such as legal obligations and different tax. Pvt Ltd has a different structure.
The main deference between a sole proprietor and a limited company is that this type of company has a special status in the eyes of the law. It is set up directly by registering the company with the Registrar of Companies, India.
Advantages of Private Limited Company
There are some clear benefits to setting up a private limited company in India.
Separate Legal Existence
The separate legal entity is itself from its owners and managers. In India, once the registration of the company is done, a legal entity is born in eyes of law.
After the company registration, it can operate on its own name enter into a contract with parties. The company can open and operate a bank account. In case of any defaults, It also provides the right to sue third parties.
In a Pvt Ltd Company, shares can be transferred or sold to other people by the choice of the owner. On the other hand, public companies, ownership of shares and regulation can be sold to the public on an open market.
Shares of the companies here are not sold in the open market. Such a company’s shares are owned by a group of private investors, management or founders.
Thus there will be less number of shareholders that means less confusion, complexity in management and decision making.
Protect business name
Other organizations cannot use the name or one that is similar when trading. The name of the business is protected.
Sometimes, legal formalities of company registration are time-consuming and very expensive. For forming a public company in India, there is a long list of legal formalities.
If you’re planning to establish a public company, you better be prepared because there is a long list of legal formalities. Compare to public limited company, private companies have a comparatively shorter list.
Limited Liability of owners
In Pvt Ltd company, the owner’s liability stays limited only to the capital subscribed and unpaid by them. The debts of does not create a charge over the owner’s assets.
Decision Making & Management
Decision making and management become more confusing and complex in public companies as more shareholders are to be consulted. This complex procedure is eliminated in a Pvt Ltd company as the number of shareholders is limited.
Easy Fund Raising
The registration process of the Private limited company is stringent enough to make this structure credible among others.
A Private Limited Company can raise funds via ESOP, Venture Capitalists, Sweat Equity Shares, Friends and Family, private equity, and more under Companies Act 2013, which makes fundraising from external sources easier.
Long Term Planning
Public company managers are pressurized to increase the stock value of companies. Private limited companies can focus on long-term earnings.
Ownership Separation & Management
In Pvt Ltd companies, the shareholders assign responsibility to operate the organization without losing voting control. The management and separate ownership help both – the management and the company to focus on their potential works.
Confidential information like legal settlements, executive compensation, and other essential information can be kept reserved in private limited companies.
The focus of Management
Compare to managers of public companies, the private company’s managers are more flexible in the long term and short term business decisions.
The corporate taxes of Pvt Ltd Companies may be lower than those paid by another kind of organization. Private limited companies also can enjoy tax benefits.
Private Limited Company Characteristics
Following are the main characteristics of a Pvt Ltd company:
A number of directors:
With the existence of a minimum of 2 directors, it can come into operations. It needs to have only two directors in a Private limited company, a company can carry on its operations.
Register of Members:
As per company low, there is no compulsion to maintain the register of members for the private limited company as required by a public limited company.
The Pvt ltd company must have a minimum Rs 1 lakh paid-up capital or such a higher amount which may be prescribed from time to time. However, as per the recent amendment of the register of the company (ROC), there is a minimum capital requirement.
It is mandatory to use the word “Private Limited Company” at the end of all private company’s names.
If a company faces loss under any circumstances then the personal assets of the shareholders are not at risk and its shareholders are liable to sell their personal or individual assets for payment.
The liability of each member or shareholders is limited compare to a public company.
Perpetual Succession: in case of bankruptcy, insolvency or death of any of its members, the company exists in the eyes of the law.
Procedure to register Private Limited Company
Initially the form processing was done manually but after initiation of MCA21 portal the formalities became faster and simpler. Registration of company is now simple.
Effective from 26th January 2018, the process of company registration in India is revamped by Ministry of Corporate Affairs (MCA). Now, the procedure of company registration can be completed within 10-15 business days.
Below are details of the documents to register a company in India. The following steps have to be taken by the applicant:
Apply for DSC (Digital Signature Certificate), It must be compulsorily obtained for the proposed directors of the company.
Apply also for DIN (Director Identification Number). Digital Signature Certificate is not required in filing the RUN application.
The first step is to file the name application. Apply for the name availability on the Ministry of Corporate Affairs (MCA) website www.mca.gov.in. The name selected should be unique.
Two names can be provided in the name application. In normal case, mostly name is approved within 2 business days.
However, if there is any query, applicant can resubmit the application for the name approval with 2 more names.
Filing of Incorporation Documents:
After obtaining the digital signature, file the legal documents such as Memorandum of Association (MOA) and Articles of Association (AOA) to register the private limited company. The applicant can have to be filed MOA and AOA within 20 days.
PAN Card & TAN Number:
Apply for the Permanent Account Number (PAN) and Tax Deduction Account Number (TAN) of the company.
Private limited Incorporation:
After submission of the required Certificate of Incorporation and other forms, certificate of incorporation will be issued by the Registrars of Companies (ROC) with PAN and TAN number.
Requirements for Private Limited Company Registration
To process of registering a company the following documents are required:
Registered office address:
The Registered office of the company is where the company’s all the documents are placed and where main affairs are been conducted.
The owner should provide the temporary address of the company while going for the registration of the company.
For incorporating, certification by these professionals is necessary. Various professionals including cost accountant, chartered accountant, and company secretary are required to make their certification at the time of company incorporation.
Choosing the right company name is an important component. It is one of the most important components of a private limited company.
For approval to the registrar of the company, every company has to send 5-6 unique and expressive names.
The company name contains three parts i.e. the activity, the name, and private limited company. The company name should not resemble with any other companies name.
One of the directors must be a resident of India. Every director should have a director identification number (DIN Number) which is given by the ministry of corporate affairs. A minimum number of two directors are required for registering the private limited company.
Documents required for register Private Limited Company
To start with the process of registering a company the following details and descriptions of the documents required for register Pvt Ltd Company.
Directors and Shareholders documents (Any 1):
- Pan Card
- Latest Passport size photograph
- Identity Proof (Any 1), Driving License, Aadhar Card, Ration Card, Passport, Voter ID
- Proof of Address (Any 1): Electricity Bill, Telephone Bill, Tax bill, Bank Statement, Mobile Bill
Registered Office Proof (Any 1):
- Rent Agreement
- Authorization from the Landlord
- Electricity Bill, Telephone Bill, or Gas bill
- NOC from the owner
- the notarized copy of the lease
- No Objection Certificate (NOC) from the landlord.
- In case your own premise, sale deed, and ownership
It is highly recommended that the applicant should consult a financial consultant, chartered accountant, or company secretory prior to establishing a business as it involves some legal issues that can be resolved by the experts in private limited Incorporation.
Register a Pvt Ltd Company in India is comparatively less time-consuming and less expensive. Compared to public limited companies, registering a Private Limited Company is less complicated.
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