All You Need To Know About The Incorporation of A Private Limited Company
An organisation’s legal structure is the key factor that determines its rights and limits. It includes the ability to raise capital, responsibility for business obligations and how many taxes it is obligated to pay to the government.
At the time of business registration, companies look for a balance between control and liabilities. It is up to you which type of legal entity you want your company to be. Countless enterprises in India including some of the startup biggies like Flipcart, PhonePe, and Swiggy chose to be a Private Limited Company. Infact, the Government of India promotes the incorporation of businesses in India along with the “Make in India” campaign.
There are numerous advantages of a Private Limited Company. Limited liability, tax benefits, transparency are to name a few.
Before you decide to get your own certificate from a Private Limited Company, let’s understand it in depth.
What is a private limited company?
It is one of the most common forms of business in which shares can be issued to practically anybody, be it an adult individual, company, HUF, trust, even foreign nationals. But the shares can be of different types – the shareholders may or may not have the voting rights. However, in most cases, the shares are owned by the founders of the company, their relatives or friends.
A private limited company is carried on by its directors. The directors can be the founders or other shareholders, or expert professionals recruited by the shareholders.
Requirements for registration of a Private Limited Company
- Number of members: The minimum number of members or shareholders required as per the Companies Act, 2013 is 2. However, it cannot exceed 200.
- Number of directors: Two directors are needed for the registration of a Private Limited Company. A DIN by the Ministry of Corporate Affairs should be allotted to each of the directors. One of them should be a resident of India and should have stayed in India for at least 182 days. The other director can be a foreigner.
- The right company name: The name of a private limited company has three components- its name, activity and the words ‘Private Limited Company’. The name of a company should be unique to itself. While registration, a company needs to send 5 to 6 options for its name. Name is a crucial part of a company. So, choosing it is surely an important decision.
- Certification by professionals:
- Office address: A company needs to provide a temporary address for the registration of a company. After the business registration is done, it becomes its permanent address where all documents of the company are placed.
- A Digital Signature Certificate (DSC): A digital signature is a secure way to submit documents electronically. For incorporation of a private limited company, DSC is posed as a requirement by MCA.
- Director’s PAN card.
- Director’s ID proof: Aadhar card, Voter ID card, passport or driver’s license.
- Proof of address of the director: Latest telephone bill, savings bank account statement, mobile bill or electricity bill.
- Latest passport size photograph of the director
Also, the director’s mobile number should be linked to their Aadhar card. In case there are any foreign directors, a passport is mandatory.
How to complete your Private Limited Company registration process?
It takes a time span of 15 to 18 days to register for a private limited company. The following steps are required for the formation/ registration/ incorporation of a private limited company in India:
- Applying for Director Identification Number (DIN) and Digital signature Certificate (DSC): A DIN is unique to the director of a company and is required to be allotted only once in a lifetime.
- Name selection formalities and then application for the selected name: An application for the reservation of name of the company shall be submitted in RUN. The government charges a fee of ₹1000 for this.The approved name is reserved for the applicant for the next 60 days. Application for incorporation should be filled within this period.
- Drafting of MOA (Memorandum of Association) and AOA (Article of Association): MOA states the scope of operations of the company whereas AOA specifies the carrying out of its operations.
- Filling of E-forms on the portal of the Ministry of Corporate Affairs (MCA): MCA has introduced SPICe ( Simplified Proforma for Incorporating a Company Electronically) form that allows incorporation of a private limited company with a single application. Different aspects like reservation of name, application for allotment of DIN and more is covered in this form.
- Payment of fees for registration and stamp duty.
- Verification of all documents/forms by the Registrar of Companies (ROC).
Once these steps are completed, a Certificate of Incorporation is issued to the director of the company.
What is the certificate of incorporation of a private limited company?
The Certificate of Incorporation is the legal document that validates or brings the company into existence. The Certificate of Incorporation primarily contains the following items.
- The name of the corporation (with abbreviation, if applicable).
- The scope and purpose of the company.
- The address of the corporation’s registered office and the name of the registered agent for that address.
- The number of shares of stock authorized to be issued, as well as a description of the various types of stock that the company may issue if more than one type exists.
The certificate of incorporation is compulsory to form a company. This is a license issued by the state government where the company is incorporated. The certificate of incorporation is the final step in registering as a private limited company and is mailed after all required documents have been approved for registration.
After the completion of all the required steps and the issuing of the certificate of Incorporation, a company is free to continue with its business activities as a Private Limited Company. It gives a company the right to do business throughout the country and even outside it. India is emerging as a startup ecosystem and registration of new companies is essential for this purpose.