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Private Limited Company Registration is the lawful process through which a business entity obtains recognition as a private limited company under the Companies Act of India. This form of business structure is characterized by limited liability and a separate legal identity.
Accurate and comprehensive documentation is the cornerstone of a successful Pvt Ltd Company Registration. Proper documentation not only ensures compliance with legal requirements but also establishes transparency and credibility in the eyes of stakeholders, including potential investors and partners.
The purpose of this guide is to provide a step-by-step overview of the Pvt Ltd Company Registration process in India. From understanding documentation requirements to completing the registration, this guide aims to assist entrepreneurs and business owners in navigating the intricate procedures involved in establishing a private limited company.
A private limited company stands as a business entity held by private stakeholders, distinctive in its liability arrangement, where shareholders' liability extends solely up to the number of shares they possess.
Amidst the burgeoning startup landscape nationwide, where aspiring entrepreneurs seek to chart their own course, it becomes imperative to grasp the nuances of various business registration options, including sole proprietorship, limited liability company, and the focus of our discussion, the private limited company.
In legal terms, Section 2 (68) of the Companies Act, 2013, precisely defines a private company as follows:
"A Company having a minimum paid-up share capital as may be prescribed, and which, through its articles,— (i) confines the right to transfer its shares; (ii) with the exception of the One Person Company, limits its membership to a maximum of two hundred; (iii) bars any solicitation to the general public for subscription to the company's securities."
In the subsequent discourse, we shall explore various facets of a private limited company.
Private companies relish distinct advantages over their public counterparts, particularly in terms of their ability to pursue long-term strategies, maintain confidentiality of share values and financial data, and exercise greater freedom and operational flexibility.
When aspiring directors seek to establish a private limited company, it's imperative that they furnish specific documents to verify their identity. Here are the prerequisites for documentation:
For Indian Nationals:
Proof of Identification (Mandatory): PAN card is obligatory.
Address Verification (Choose one): Passport, Driver’s License, Election ID, Ration Card, or Aadhar ID.
For Foreign Nationals:
Proof of Identification (Mandatory): A passport is a requisite.
Address Verification (Choose one): Options include a Driver’s License, Bank Statement, or Residence Card.
Additionally, as evidence of residency, prospective Directors must provide a document generated within the last two months. Here's what's needed:
For Indian Nationals:
Residency Confirmation (Choose one): Bank Statement, Electricity Bill, or Phone Bill.
For Foreign Nationals:
Residency Confirmation (Choose one): Bank Statement, Electricity Bill, or Phone Bill.
Now, if one of the company's shareholders happens to be a corporate entity, whether based in India or abroad, these documents must be submitted:
Board Resolution: A formal resolution authorizing the company's investment in the venture.
Incorporation Certificate: A document confirming the company's official incorporation status.
Address Verification: Proof of the company's registered address.
These carefully compiled documents help ensure the transparency and legality of the private limited company's operations in adherence to regulatory standards.
When venturing on the journey of establishing a company in India, it's important to understand the implications of capital structure. Here are key concepts to keep in mind:
Face Value of Share:
Authorized Capital:
Paid-up Capital:
Understanding these capital-related concepts lays a strong foundation for structuring the financial aspects of your company in accordance with legal and regulatory requirements. This flexibility in determining the capital allows for businesses of various sizes and scopes to thrive in the Indian business landscape.
Step 1: Company Name Approval
The initial step in company incorporation is to secure approval for the company's name. An application is submitted to the Ministry of Corporate Affairs, where 1 or 2 name choices, along with business objectives, can be proposed. In case of name rejection, the option to resubmit 1 or 2 alternative names is available. Typically, the Ministry processes name approval applications within a remarkably short span of fewer than 5 working days.
Step 2: Procuring Digital Signatures for Directors
In India, the Ministry of Corporate Affairs mandates the use of digital signatures for all filings, eliminating the need for physical signatures. Directors must obtain digital signatures from a Certification Authority in India. This process is facilitated by IndiaFilings. Directors are required to submit their identity proof and undergo a video KYC process. For foreign nationals serving as Directors, their passport and related documents must be apostilled by the local embassy.
Step 3: Submission of Incorporation Application
With digital signatures in hand, the incorporation application can be submitted in the SPICe Form to the Ministry of Corporate Affairs, accompanied by all necessary attachments. Additionally, the Memorandum of Association (MOA) and Articles of Association (AOA) of the company are filed. Upon review, if the Ministry deems the incorporation application complete and compliant, they grant the Incorporation Certificate along with the company's PAN (Permanent Account Number). Typically, the Ministry processes and approves most incorporation applications within 5 working days.
Registered Office Requirement:
Every company incorporated in India is legally obligated to maintain a registered office within the country. This registered office should prominently display the company's name on a board and must be a physical location where official notices or communications can be served. As such, the registered office cannot be a vacant piece of land or premises that are still under construction.
Changing the Registered Office:
Post-incorporation, companies have the flexibility to change their registered office if necessary. If the change is within the same city or falls under the jurisdiction of the same Registrar of Companies, the process can be relatively straightforward and efficient. However, if the change involves relocating the registered office from one Indian state to another, it becomes a more complex and time-consuming procedure.
Ensuring the proper maintenance and compliance of the registered office is crucial for any company's legal standing and administrative efficiency. When contemplating changes to the registered office, it's essential to follow the prescribed procedures to avoid any legal complications.
Upon the successful registration of the company, it becomes imperative to establish a corporate bank current account within a timeframe of 180 days, ensuring the deposit of the subscription amount. Failure to complete these aforementioned steps would result in the non-issuance of the commencement of business certificate, accompanied by the imposition of penalties.
The documentation essential for opening a bank account for a private limited company includes:
Auditor Appointment:
Upon registration, all Indian companies are mandated to appoint a practicing and licensed Chartered Accountant who is registered with the Institute of Chartered Accountants of India (ICAI) within 30 days of incorporation.
Director DIN KYC:
Directors possessing a Director Identification Number (DIN), which is allocated during the incorporation process, must undergo an annual DIN KYC procedure to validate their contact details, including email addresses and phone numbers, with the Ministry of Corporate Affairs.
Commencement of Business:
Within 180 days of incorporation, companies must establish a Bank Current Account. Shareholders are required to deposit the subscription amount specified in the Memorandum of Association (MOA) into this account. For instance, if the MOA specifies a paid-up capital of Rs. 1 lakh, shareholders must deposit this amount in the company's bank account. Subsequently, the bank statement, along with relevant documentation, should be filed with the Ministry to obtain a Commencement of Business certificate.
MCA Annual Filings:
Every Indian company is obligated to file financial statements with the Ministry of Corporate Affairs annually. If a company is incorporated between January and March, it may choose to include its first MCA annual return as part of the next financial year's filing. This annual return comprises Form MGT-7 and Form AOC-4, both of which must bear digital signatures from the Directors and a practicing professional.
Income Tax Filing:
Companies must file an ITR using Form ITR-6 each financial year. This filing is mandatory regardless of the incorporation date. It's essential to complete this process before the stipulated due date. The income tax return of a company should be digitally signed using one of the Director's digital signatures.
A company can choose to get GST registration at the same time as its incorporation, but this is optional. Only when the company’s turnover exceeds certain limits, it becomes compulsory to register under the GST.
The owners of the firm have to file a declaration called Form 20A when they start the company. A CA, a CS, or a Cost Accountant should verify it in practice. Therefore, you need the help of a CA or any professional to register a Pvt Ltd company.
Some of the common choices for a startup’s business structure are LLPs and Private Limited companies. A Private Limited company has legal recognition and is usually preferred by investors. However, it also has more compliance requirements and may incur a higher cost of incorporation.
