Private Limited Company

What is a Private Limited Company?

One of the most prevalent kinds of legal entities in India is a Private Limited Company (PLC). A minimum of 2 Directors and 2 Shareholders are required for Private Limited Companies under the 2013 Companies Act, with one of the Directors having to be an Indian Resident and Citizen.

To register a company in India, the following are minimum requirements:

• 2 Directors – 1 Person should be an Indian National and Indian Resident
• 2 Shareholders – The Directors can be shareholders
• Registered Office in India

100% Foreign Direct Ownership (FDI) is permitted in most sectors in India and there is no restriction on foreign shareholding of a private limited company. Hence, most foreign subsidiaries are established in India as private limited company.

Documents Required for Company Registration

The proposed directors of a private limited company must present the following documents as proof of identification in order to register a company:

Indian Nationals: PAN card mandatory

Foreign Nationals: Passport is mandatory

In addition to the above document, the Directors must submit one of the following documents that contain the address of the Director.

Indian Nationals: Passport / Driver’s License / Election ID / Ration Card / Aadhar ID

Foreign Nationals: Drivers License / Bank Statement / Residence Card

Finally, as proof of residency, the prospective Directors must produce one of the following documents. This document must have been generated within the last two months:

Indian Nationals: Bank Statement / Electricity Bill / Phone Bill

Foreign Nationals: Bank Statement / Electricity Bill / Phone Bill

If one of the company's shareholders is a company based in India or abroad, the following documents must be submitted:

• Board resolution authorizing investment in the company
• Incorporation Certificate of the Company
• Address proof of the company

Capital Required to Start a Company

India is a country where a business can be launched with very little funding. It is up to the shareholders of the newly formed firm to decide how much capital they want to put in; there is no set amount. The following are some ideas to keep in mind when setting up the company's capital structure:

Face Value of Share: The face value of a share is the price per share with which the company is incorporated. Normally, the face value of share is Rs. 1 or Rs. 10 or Rs. 100 or Rs. 1000 or Rs. 10,000.

Authorised Capital: Authorised capital is the total value of shares a company can issue to shareholders. Normally, all companies are incorporated with an authorized capital of Rs. 1 lakh or Rs. 10 lakhs. If a higher authorized capital is required, the company would be required to pay additional fees to the Ministry of Corporate Affairs. The authorised capital of a company can be increased at any time after incorporation.

Paid-up Capital: Paid-up capital of a company is the number of shares issued to shareholders for which they have paid or deposited money to the company. Paid-up capital of a company cannot be more than the authorized share capital of the company.

Company Registration Process

The following are the steps involved in registering a company in India:

Step 1: RUN Name Approval

To reserve the company name, a company name approval application must first be sent to the Ministry of Corporate Affairs. One or two names with business goals may be presented in the name approval application. One or two other names may be submitted if a name permission is declined. The MCA typically responds to all requests for name approval in less than 5 business days.

Step 2: Digital Signature for Directors

Wet signatures are prohibited by the Indian Ministry of Corporate Affairs. Every signature for filings with the MCA needs to be a digital one that is generated by an Indian Certification Authority. For this reason, before incorporation, digital signatures from the Directors are required.

IndiaFilings will use a Certified Certifying Authority to obtain the Directors' digital signature. Directors will need to provide a copy of their identity documentation and go through a video KYC process in order to receive a digital signature. The passport and other provided documents need to be apostilled by a nearby embassy if the Director is a foreign national.

Step 3: Incorporation Application Submission

The incorporation application can be sent to the MCA in SPICe Form together with all pertinent documents after the digital signatures have been received. The company's articles of association and memorandum of association are filed with the application for incorporation. The Incorporation Certificate and PAN of the Company are granted along with the Incorporation Certificate if the MCA deems the incorporation application to be complete and acceptable. Normally, it takes less than five working days for the MCA to accept all applications for incorporation.

Private Limited Company Compliances

To avoid fines and legal action, a firm must periodically maintain a number of compliances once it has been established in India. A firm would have to comply with the following requirements after registering as a business:

Auditor Appointment: All companies registered in India must appoint a practicing and licensed Chartered Accountant registered with the ICAI within 30 days of incorporation.

Director DIN KYC: All persons who hold a Director Identification Number (DIN) – which is allocated during the incorporation process must complete DIN KYC each year to validate the phone and email address on record with the Ministry of Corporate Affairs.

Commencement of Business: Within 180 days of incorporation, the company must open a Bank Current Account and the shareholders must deposit the subscription amount mentioned in the MOA of the company. Hence, if the company was to be incorporated with a paid-up capital of Rs. 1 lakh, then the shareholders must deposit Rs. 1 lakh in the Company’s bank account and file the bank statement with the MCA to obtain a commencement of business certificate.

MCA Annual Filings: All companies registered in India must file a copy of the financial statements with the Ministry of Corporate Affairs each financial year. If a company is incorporated between January – March, the company can choose to file the first MCA annual return as a part of the next financial year’s annual filing. MCA annual return consists of Form MGT-7 and Form AOC-4. Both these forms must be digitally signed by the Directors and a practising professional.

Income Tax Filing: All companies must file an income tax return using Form ITR-6 each financial year. Income tax filing must be done for each financial year before the due date – irrespective of the incorporation date. The income tax return of a company must be digitally signed using one of the Director’s digital signature.

Registered Office of Company

A registered office must be kept in India for every company that has an Indian registration. The registered office must have a board with the firm name on it and should be a location where notice or communications, if any, can be delivered. Because of this, a company's registered office cannot be a construction site or a building that is not yet finished.

A company may, if necessary, alter its registered office after incorporation. The procedure is simple to execute in the event that the registered office is moved within the same city or Registrar of Companies. The procedure would be more time-consuming and challenging if a company's registered office were to move from one state to another.

GST Registration after Company Registration

The Directors can choose to get GST registration simultaneously with incorporation during the company registration process. Except in cases when specific turnover thresholds are exceeded, a corporation is not required to register under the GST. In this thorough guide to GST registration in India, you can learn more about the turnover threshold and the procedure for applying for registration.

GO TO GST REGISTRATION

Bank Account for Private Limited Company

The subscription money must be placed into a bank current account formed in the firm's name within 180 days of company registration. The commencement of business certificate won't be provided and there will be consequences if the aforementioned processes are not followed.

The following are documents required to open bank account for a private limited company:

• Incorporation Certificate of Company
• Directors KYC Documents
• Board Resolution Authorizing the Directors to open Bank Account
• Address Proof of the Company

At IndiaFilings, we work with various banks to help our clients open a current accounts for their companies in a seamless fashion.

Advantages of Private Limited Company

The following are the major advantages of incorporating a private limited company in India versus other entity types.

Separate Legal Entity

Both a legal entity and a juristic person, a corporation is both. Consequently, a corporation has a wide range of legal rights, including the ability to buy property, take on debt, employ people, and more. Due to the fact that a corporation is a distinct legal entity, its owners (shareholders or directors) are not held personally responsible for the company's debts.

Limited Liability

Having limitations on its liabilities, a private limited company is a distinct legal entity. Therefore, beyond what they contributed as share capital, the shareholders are not responsible for the company's losses.

Uninterrupted Existence

As long as it is not formally dissolved, a corporation has "perpetual succession," which implies it will remain indefinitely. A company's continued existence is unaffected by any member's death or other kind of departure because it is a separate legal entity from its members.

Fund Raising

Several options exist for raising money for a private limited corporation. Shareholders, investors, angel investors, venture capitalists, private equity investors, overseas investors, non-bank financial companies (NBFCs), banks, and other financial institutions can all help a firm raise money. Investors can only provide capital for a corporation in the form of debt and stock.

Disadvantages of Private Limited Company

While a company has various advantages, registering a company may not be ideal for all entrepreneurs due to the following reasons:

Compliances

A company has to mandatorily maintain various compliances irrespective of business turnover or activity. Hence, operating a company involves a minimum recurring cost each year.

PAN Card

PAN is mandatory for Indian Directors.

Passport (Foreign Nationals Only)

Passport is mandatory for Foreign Directors or Shareholders.

Aadhaar Card

Aadhaar is mandatory for Indian Directors.

Foreign Government - Address Proof

Any document issued by a Foreign Government having a photo and address of the Director or Shareholder.

Bank Statement

Latest bank statement of the Directors and Shareholders.

Latest Electricity Bill

Latest electricity bill for the registered office premises.

Latest Telephone Bill

Latest telephone bill for the registered office premises. Electricity bill preferred.

Latest Mobile Bill

Latest mobile bill for the registered office premises. Electricity bill preferred.

Board Resolution Authorising Investment

If the proposed shareholder is another company or legal entity.

Investing Company Address Proof

If the proposed shareholder is another company or legal entity.

Passport Size Photo

Passport size photo of the Directors and Individual Shareholders.

Recent Utility Bill

Business Place

Proprietorship vs Limited Liability Partnership (LLP) vs Company