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Registration of Private Limited Company

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In India, the first preference among corporate structure is incorporation/registration as a Private Limited Company.

So, what’s the reason behind this? Why entrepreneurs have more focus on Incorporation of their companies as a Private Limited Companies in preference to other formats of business organization.

What are the benefits of Incorporation as a Private Limited Company?

Here we will discuss about the Incorporation of Company as a Private Limited Company in detail.

Definition of Private Company:

Private company means a company having a minimum paid-up share capital as may be prescribed, and which by its articles], —

  • Restricts the right to transfer its shares;
  • Limits the number of its members to two hundred except in case of One Person Company.

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

  • Persons who are in the employment of the company; and
  • Persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,

shall not be included in the number of members; and

  • Prohibits any invitation to the public to subscribe for any securities of the company;

Types of Private Company

 There are three types of private company, but most preferable for the business purpose is Private Company– Limited by Shares. Because, it gives maximum protection for its members and is most widely accepted.

  • Company Limited by Shares: In this type of company, the liability of the shareholders is limited to the extent of their share in the company or the unpaid amount of share.

Therefore, a member is not liable to pay more than his investment in the company.

  • Company Limited by Guarantee: In this type company, the member gives a guarantee to be held liable.
  • The liability of such a member is limited to the extent of his guarantee.
  • He cannot be held liable for more than his guarantee to the company.
  • The guarantee given by a member can only be called at the time of winding up of the company.
  • This type of company is best suitable for clubs, trade associations, societies etc. that requires minimal capital or working capital funds.
  • Unlimited Company: The liability of the members in such companies is unlimited. It means that their personal assets can be utilized to pay off company’s debts and liabilities.

It is to be noted that this does not mean that there is no separate legal entity. The company and the members are still different.

In India, most of the promoters prefers to choose Private Company Limited by Shares for Incorporation.

What does limited liability mean and how it is beneficial for the companies?

“The limited liability corporation is the greatest single invention of modern times”

When you hear the word limited, what do you think? It brings up negative thoughts as well as positive thoughts. Sometimes being limited can be really useful like limiting the speed of your car to the road speed, credit card limits which stops your spending’s on lavish holidays and on irrelevant things.

Similarly, the word limited liability is the “limit” that sits behind the name of a business.
“Limited liability” is a way to make sure that a person who is engaged in business does not risk his or her personal possessions in case the business fails.

In simple terms, if a company faces loss under any circumstances then its shareholders are liable to dispose off company assets only for payment. The personal, individual assets of the shareholders will not be taken into account in fact.
Therefore, the liability of each member is limited to the extent of their shareholding in the company.

Therefore, the liability of each member is limited to the extent of their shareholding in the company.

Advantages of Private Limited Companies

  1. Members- Minimum 2 members is required to start a private limited company
  2. Limited Liability– The liability of each member is limited to the contribution made by
  3. Capital– No minimum Capital is required to start a Private Limited Company. However, for being a Private Company Limited by shares, it is necessary that at least one shares must be subscribed by
  4. Separate Legal Entity: Company is a legal entity and a juristic person in the eyes of laws. A juristic person is a person who is not a natural person or human being.Therefore, The Company is an Artificial person and has wide legal capacity and Can own property and also incur debts in its own name. The members/ directors of a company have no liability to the creditors of a company for such debts. Hence, a Private Limited Company is a legal entity separate from that of its members.
  1. Capacity to sue and be sued: To sue means to institute legal proceedings against or to bring a suit in a court of law. Being an artificial person, a company can sue and also be sued in its own name.
    1. Perpetual succession: A company has ‘perpetual succession’ that is continued or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death of any member but continues to be in existence irrespective of the changes in membership/directorship.
  • Requirements for Registration of Private Limited Company

    • Members: To start a private limited company, the limits of members prescribed under Companies Act, 2013:
      • The minimum requirement of members is 2 and
      • A limitation on the number of its members to 200 (except in case of OPC) (If two or more people jointly hold a share, they will be considered as a single member)

      2. Director: A director is an individual who manages or oversees affairs of business of the company.
      A company although having separate legal identity but in actual terms it is an artificial
      person which doesn’t have any physical existence at its own. For management of its affairs it needs some living being to act on its behalf and that is where Board of directors comes into picture.

      • A minimum number of 2 directors is required for registering the private limited company.
      • Each of the directors should have Director Identification Number(DIN) which is given by the Ministry of Corporate Affairs(MCA).
      • One of the directors must be a resident of India which means he/she should have stayed in India for not less than 182 days in a previous calendar year.

      3. Name– Choosing the right company name is an important element. The Name of the Company should not be similar or identical to the name of any existing Company. It is necessary for all private companies to use the word “private limited company” at the end of its name. Failure in doing so attracts penalty under the provisions of Companies Act, 2013.

      4. Registered office address– The Registered office of the company is where the company’s main affairs are being conducted and where all the documents are placed.

      • At the time of filing of incorporation documents, the promoter should provide the document for proposed address of the company.
      • However, when the company has been registered, the proposed address of its registered office can be changed with the registrar of the company, if so required.

      5. Objects: The Purpose of the Company for which it is established and details of the activities to be pursued by the Company on its incorporation.
      6. Capital: The capital structure would be broadly divided into two parts:

      • Authorized Share Capital- It is the maximum amount of the capital for which shares can be issued by the Company to shareholders, which can be increased at any time in future by following necessary steps as required by law.
      • Paid up share capital- It is an amount of money for which shares of the Company were issued to the shareholders and payment was made by the shareholders.

       

Procedure to register Private Limited Company

Once a name for the company is decided, the following steps have to be taken by the applicant:

Step 1: Apply for DSC of director/subscriber

Step 2: Apply for the reservation of name of company: At least two names should be proposed.

Step 3: File the Spice form along with e-MOA and e-AOA to register the private limited company.

Step 4: CIN will be issued by RoC with PAN and TAN

Checklist of Documents/information required for registration Private Limited Company

InformationDocuments
DSCPhoto and ID and Address Proof
Name of the CompanyMinimum Two Names
Registered Office AddressOwnership Proof Like Sales Deed
In case of rented Premises, Rent Agreement shall be required
Utility Bill not older than Months
No Objection certificate from the Owner of the Premise
Objects of the CompanyDetailed objects to be pursued by the Company
Capital StructureAmount of Authorized and Paid up capital Detail
Credentials of Promoters and DirectorID and Address proof Consent of Director (DIR-2) Declaration in Form INC 9 Email and Contact details Occupation detail
Education details