Under Section 2(68) of The Companies Act, 2013, a private limited company is legally defined as a distinct entity that operates privately and offers limited liability to its members. Unlike public companies, a private limited company is not authorized to freely transfer its shares to the general public. Instead, its ownership remains confined to a select group of shareholders.
Being an artificial person established by law, a private limited company possesses the capacity to act independently. It can initiate legal actions and be subject to legal proceedings in its own name. One key characteristic of a private limited company is the clear distinction between its management, represented by the directors, and its owners, who are the shareholders. This separation allows for effective governance and decision-making processes.
For foreign companies looking to establish their presence in India, opting for a private limited company structure is a common choice. This enables them to incorporate subsidiary companies that enjoy the benefits and regulations associated with private limited entities.
In summary, a private limited company offers the advantages of limited liability and privacy to its shareholders, while functioning as a legally recognized entity capable of independent action within the framework of the law.
Advantages of a Private Limited Company:
- Access to Foreign Investment: Private limited companies have a higher level of credibility and transparency, making them attractive to foreign investors. Strict compliance requirements and availability of company data on official platforms like the Registrar of Companies (ROC) instill trust among foreign investors.
- Separate Legal Entity: A private limited company is considered a separate legal entity, distinct from its shareholders and directors. This means that changes in ownership or the departure of members do not affect the existence of the company. Even in the event of bankruptcy or the departure of all members, the company continues to exist under the law.
- Ownership of Assets: Private limited companies have the ability to own various types of assets, including movable and immovable properties. The company assumes responsibility for its assets and liabilities, reducing the individual liability of the shareholders. In case of dissolution, the company’s liabilities are settled in a specified order, providing further protection to shareholders.
- Enhanced Borrowing Capacity: Private limited companies enjoy greater borrowing capacity as compared to other business entities. Financial institutions and banks are more willing to provide loans and financial assistance to private limited companies due to their transparent operations, compliance with regulations, and availability of partial data on government platforms.
- Ease of Share Transfer: Private limited companies offer a relatively straightforward and quick process for transferring ownership shares between shareholders. This flexibility allows for easy changes in ownership structure, facilitating business continuity and potential investments.
- Funding Opportunities: Private limited companies have advantages when it comes to raising funds. They can attract venture capital investments, equity funds, and secure loans from banks more easily compared to other entities. The credibility and transparency of private limited companies make them more appealing to investors and financial institutions.
- Employee Stock Option Plan (ESOP): Private limited companies have the option to implement an Employee Stock Option Plan (ESOP). This plan allows loyal employees to become part-owners of the company, incentivizing their retention and fostering a sense of ownership and commitment.
In summary, private limited companies offer numerous benefits such as access to foreign investment, separate legal entity status, ownership of assets, enhanced borrowing capacity, ease of share transfer, funding opportunities, and the ability to implement an ESOP. These advantages make private limited companies a popular choice for entrepreneurs and investors seeking a reliable and flexible business structure.
Checklist/Requirements for Registering a Private Limited Company:
Basic Requirements:
- Minimum of 2 shareholders – Maximum of 200 shareholders
- Minimum of 2 directors – Maximum of 15 directors
- At least 1 director must be a resident of India
- Directors and shareholders can be the same person
- A registered address for the company
Documents Required for Each Director and Shareholder:
- PAN Card* (mandatory for Indian nationals, and others if held)
- Passport* (for NRIs, foreigners, and Indian nationals if held)
- Address Proof (not older than 2 months) – Any of the following:
- Bank Statement
- Phone Bill
- Mobile Bill
- Electricity Bill
(Note: For NRIs and foreigners, documents issued by foreign authorities or signed outside India must be notarized and apostilled)
Documents Required for Registered Address:
- No Objection Certificate (NOC) from the owner*
- Rent Agreement*
- Tax Paid Challan (if the premises are owned)
- Utility Bill*
Please note that the documents marked with an asterisk (*) are mandatory for all directors and shareholders, while the others may vary based on individual circumstances.
Steps to register a Private Limited Company:
Step 1: Obtain Digital Signature Certificates (DSC)
- Apply for Digital Signature Certificates for the proposed directors and shareholders of the company.
Step 2: Reserve the Company Name
- Submit an application for name reservation to the Registrar of Companies (ROC).
- Choose a unique name for the company that complies with the naming guidelines provided by the ROC.
- Once the name is approved, it will be reserved for a specific period.
Step 3: Draft the Memorandum of Association (MOA) and Articles of Association (AOA)
- Prepare the MOA and AOA, which define the objectives, rules, and regulations of the company.
- Ensure the documents are drafted in compliance with the Companies Act and other applicable laws.
Step 4: File the Incorporation Application
- Submit the incorporation application along with the required documents, such as the MOA, AOA, and identity/address proofs of directors and shareholders.
- Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the company.
Step 5: Obtain Certificate of Incorporation
- Once the Registrar approves the application, a Certificate of Incorporation will be issued.
- The certificate confirms the legal existence of the company and includes the Corporate Identity Number (CIN).
- Additionally, PAN and TAN numbers will be provided for tax purposes.
Please note that this is a general outline of the registration process. The specific requirements, forms, and procedures may vary depending on the jurisdiction and applicable laws. It is advisable to consult with a professional or legal expert to ensure compliance with the specific registration requirements in your country or region.
The incorporation of a Private Limited Company involves several key deliverables:
a. Digital Signature Certificates (DSC):
- Obtain DSC for all directors and shareholders of the company.
- DSC enables secure and authenticated digital transactions and filings with government authorities.
b. Share Certificates:
- Issue share certificates to the shareholders of the company.
- Share certificates represent the ownership of shares and provide evidence of the shareholders’ investment.
c. Certificate of Incorporation, PAN, and TAN:
- Receive the Certificate of Incorporation, which confirms the legal establishment of the company.
- Obtain the Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) for the company.
- PAN is required for various taxation purposes, while TAN is necessary for deducting and collecting taxes at source.
d. Memorandum of Association (MOA) and Articles of Association (AOA):
- Prepare and finalize the MOA and AOA.
- MOA outlines the company’s objectives, scope of operations, and relationships with shareholders and stakeholders.
- AOA defines the internal regulations, management structure, and governance framework of the company.
These deliverables are crucial for the incorporation process and provide the necessary legal documents, certificates, and frameworks for the operation of the Private Limited Company. It is important to ensure compliance with applicable laws and regulations while preparing and obtaining these deliverables.
What do you want to know?
Yes, Digital Signature Certificate (DSC) is mandatory for subscribers while incorporating a company in India. The subscribers are required to digitally sign the e-MoA (electronic Memorandum of Association) and e-AoA (electronic Articles of Association) using their DSC.
No, it is not mandatory for the name to be indicative of the nature of its business, however it is required to follow the name reservation guidelines.
Broadly the company name has 3 components in it:
Unique component: This the first component and also the prime component of the name. this should be unique and should not be trademarked or used by any other company or LLP. It should not contain phrases or words that are blacklisted by RBI.
Description of Industry: The second component should be a word or phrase which describes the business or Industry the company is going to carry its operations. Some of the popular descriptive words are Technology/ies, Internet, Chemicals, builders, etc.
Suffix: A private limited company should compulsorily use suffix “Private Limited” at the end of its company name.
No, you don’t necessarily need to have a commercial office space to start a company in India. As per the Companies Act, you can register a company with your residential address as the company’s registered office address. This can be done by providing proof of residence such as a utility bill or property tax receipt.
However, if you plan to have a physical office, you will need to comply with local regulations such as obtaining a trade license, fire safety clearance, and other necessary permits. Additionally, certain types of businesses such as manufacturing units may require specific zoning and other regulatory clearances.
DSC (Digital Signature Certificate) is an instrument (pen drive) issued by the certifying authorities by which you can sign e-documents. To file the incorporation related documents and other filings with MCA or income tax department, DSC is mandatory.
DIN is a unique Identification Number allotted to an individual who is appointed as a director of a company. This has a lifetime validity. In respect of a new company an application for allotment of DIN shall be made only through SPICe eform at the time of its incorporation.
The attestation requirement depends on the country in which registered office (in case of body corporate
as a subscriber) /residence of the overseas subscriber and / or director is situated. The documents are
required to be attested are as follows:
- Proof of Residence in a country which is part of the Common Wealth, by a notary public of that country;
- Proof of Residence in a country which is party to the Hague Apostille Convention, 1961,
attestation to be made by a notary public of the said country and duly apostilled in
accordance with Hague Convention; or - Proof of Residence in a country outside the Commonwealth, and which is not party to Hague
Convention, authenticated by a Diplomatic or Consular Officer empowered in this behalf
under Section 3 of the Diplomatic and Consular Officers (Oaths and Fees)Act, 1948 (40 of 1948)i.e. attested by Public Notary and authenticated by Indian Embassy in the country of
residence.
Documents to be notarised and apostilled:
- Proof of identity
- COI of the foreign body corporate, if applicable
- MoA & AoA
- Document executed outside India (Place of execution determines whether the said document is to be notarised / apostilled / consularised)
Foreign companies incorporating a subsidiary company in India may use the name of the holding company with the addition of the word “India” or the name of any Indian state or city, if available. The words “Global” and “International” may also be used in the name of an Indian company.
Yes, a director can be held liable for the offences or non-compliances that occurred during his or her tenure, even after resignation and disassociation with the company. This is because the director was responsible for the management and operations of the company during his or her tenure and is expected to ensure compliance with applicable laws and regulations. The liability of the director would depend on the nature of the offence or non-compliance and the extent of his or her involvement or negligence in the matter.
Yes, a director can be held liable for the offences or non-compliances that occurred during their tenure, even after their resignation and disassociation with the company. This is because the director’s duties and responsibilities do not end with their resignation or disassociation, but continue for a reasonable period of time until their successor is appointed.
Under the Companies Act, 2013, a director who has resigned from the company can be held liable for any offence committed during their tenure if it is proved that the offence was committed with their knowledge or consent, or was committed due to their negligence or default. Furthermore, if the company is found to be non-compliant with any provision of the law during the director’s tenure, the director can be held responsible for such non-compliance and may be subjected to penalties and legal action.
Therefore, it is important for directors to ensure that they fulfill their duties and obligations diligently and ensure that the company is in compliance with all applicable laws and regulations, even after their resignation or disassociation with the company.
According to company law, every company is required to hold an annual general meeting of its shareholders, where audited financial statements are adopted and declaration of final dividend is made. The first annual general meeting of a company should be held within nine months from the date of the end of the first financial year. For all other cases, the annual general meeting should be held within six months from the date of the end of the financial year.