A Private Limited Company is one type of business structure. It is a type of privately held small business entity. These are closely held businesses usually by family, friends and relatives. This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares. These restrictions are defined in the company’s bylaws or regulations and are meant to prevent any hostile takeover attempt.
Requisites for Incorporation of Private Limited Company:
- Directors : The minimum number of Directors required is Two
- Shareholders: The minimum number of shareholders is also Two and the Directors and Shareholders can be the same person, playing the dual role.
- Share Capital: Minimum Share Capital required is INR 1,00,000 .
- Director Identification Number(DIN): All the Directors must have been allotted DIN.
- Digital Signature Certificate: All Directors are not required to have DSC. Only Two directors having DSC would fulfill the need.
The Process for Incorporation of Private Limited Company is as follows:
STEP 1 – Obtaining DIN (Director Identification Number):
Every partner to be appointed as Designated Partner will need to apply for DIN.
e-Form to be filled: Form DIN-3 has to be filled and all the necessary documents are to be attached to it (the photograph and scanned copy of supporting documents i.e. proof of identity, and proof of residence as per the guidelines)
Link to download the eForm-http://www.mca.gov.in/MinistryV2/din.html
Fees: The fees to be paid is Rs.500 per DIN through online mode (i.e. Net banking / Credit Card). For Payment of the fees the applicant is required to get himself/herself registered on the MCA21 Portal to obtain login id. Link for registration-http://www.mca.gov.in/mcafoportal/showEformUpload.do
Submission of Documents: Physical submission is not required; DIN application has to be signed by a Professional as in a Chartered Accountant or a Company Secretary. The eForm shall have to be digitally signed. Login to the MCA Portal. Link for registration- http://www.mca.gov.in/mcafoportal/showEformUpload.do and click on ‘eForm upload’ link available under the ‘eForms’ tab for uploading the eForm DIR- 3. eForm DIR-3 will be processed only after the DIN application fee is paid. In case of any changes required to be made in DIN-3 uploaded, it can be done through eForm DIN-6.
Time taken for Generation of Provisional DIN: In case, DIN-3 gets certified by the professional (Chartered Accountant or a Company Secretary), the DIN will be approved by the system immediately online. In case of signing by any other signatory, the MCA DIN cell will examine the e Form DIN-3 and same shall be disposed of within one or two days.
STEP 2 – Obtaining Digital Signature:
- Any 2 Directors may apply for Digital Signature Certificate (DSC)
- Digital Signature Certificate (DSC) Applicants can directly approach Certifying Authorities (CAs) with original supporting documents, and self-attested copies will be sufficient in this case. For details regarding the CAs information this link can be followed-http://www.mca.gov.in/MinistryV2/certifying-new.html Costing/ Pricing of Digital Signatures: The cost of obtaining a digital signature certificate (normally from 1500-2000 with the Validity of 2 Years) may vary as there are many entities issuing DSCs and their charges may differ.
- The Digital Signature Certificate has to be uploaded on the Portal This link further states the steps to be followed for uploading DSC.
- Time required:The time taken by CAs to issue a DSC may vary from three to seven days.
- For details on Registering DSC follow this link- http://www.mca.gov.in/MinistryV2/Rolecheck.html
STEP 3 – Getting the Proposed Company Name approved:
It is essential to get the Proposed Company name approved by MCA before its registration. The availability of the name can be checked before filing for its approval
At least 6 names are to be suggested as per the preference or priority for the same.
- The Cost of getting it approved is Rs.1000 only.
- Application for reservation of name has to be made by filling the form INC-1.
Link for the form-http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html The name is reserved for the period of sixty days by the Registrar of Companies(RoC) from the date of Application.
STEP 4 – Drafting the Memorandum of Associations (MOA) and Articles of Associations (AOA):
- Memorandum of Associations (MOA) comprises of the main object and other objects of the Company. Articles of Associations (AOA) refers to the rules and regulations that govern the internal management of the Company.
- As soon as the name is reserved the further process is to draft the MOA and AOA. The Subscribers have to sign the subscription pages of both. They have to mention their Name, Address, Occupation in their own handwriting.
STEP 5 – Filing of e-forms with Registrar of Companies (RoC):
There are three forms which are required to be filled namely:
- Form INC-7 for Application of Incorporation of the Company. There are certain documents which are mandatory to be attached and few are optional. Refer this link-http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html to download the form as well as one can download the e-form with instruction kit which is of great help.
- Form INC-22 for Notice of situation or change of situation of registered office. Documents like Proof of Registered Office Address, Copies of Utility Bills, No objection Certificate, Certification of this form by a Professional are to be attached to the e-form.
Link for form download- http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html
- Form DIR-12 for Particulars of appointment of Directors and the key managerial personnel and the changes among them. The mandatory attachments are Letter of Appointment, Declaration by first Director in Form INC-9, Declaration of Appointee director, Managing Director in Form DIR-2.
Link for form download- http://www.mca.gov.in/MinistryV2/Download_eForm_choose.html
STEP 6 – Make Payment for RoC fees and Stamp Duty:
As we are done with the filing of the e-forms online, the further step is to make online payments for RoC fees and Stamp Duty. The amount to be paid depends on the Authorised Capital for the Company. The link for the calculation of the amount is- http://www.mca.gov.in/mcafoportal/enquireFeePreLogin.do
STEP 7 – Verification of Documents or Forms by RoC :
The next step after the submission of the fees and duties, is the verification of the documents and forms by the RoC. If certain changes are suggested after verification, those changes are required to be made in the specified form or attachment within a stipulated period of time.
STEP 8 – Certificate of Incorporation to be issued by RoC:
As RoC approves all the forms, the Certificate of Incorporation digitally signed by him is issued to the Directors via email. This certificate is sent electronically (soft copy) in accordance with the Green Initiative by MCA.
Company can start its Operations as it receives this Certificate.
The additional expenses would be the Professional charges paid to the Chartered Accountant or Company Secretary. Other than this the Stamp Duty may also vary from state to state.
Advantages of a Private Company Limited:
- Limited Liability: It means that if the company experiences financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors.
- Continuity of existence: business not affected by the status of the owner.
- Minimum number of shareholders need to start the business are only 2.
- More capital can be raised as the maximum number of shareholders allowed is 50.
- Scope of expansion is higher because easy to raise capital from financial institutions and the advantage of limited liability.
- Brand Value: Company’s brand value will get increased because people come to know about the company very well.
- Valuation: Since the share price reflects the company’s financial healthiness it would become easy to arrive at a price in case of mergers and acquisitions.
Disadvantages of a Private Company Limited:
- Growth may be limited because maximum shareholders allowed are only 50.
- The shares in a private limited company cannot be sold or transferred to anyone else without the agreement of other shareholders.
- Not allowed to invite public to subscribe to its shares.