How is a Private Limited Company Formed ?
According to the MCA Annual Data Reports, more than 10,000+ private limited companies are formed every month!
Private Limited Company is considered a popular corporate business entity among small, medium and large companies in India.
Know More about various business entities in India
Many don’t know how is a private limited company formed and what are the required procedures, documents which is needed while forming a private limited company.
Company Formation is not enough you need to follow 30 Days Compliance After Incorporation Of Company which many companies fail to follow and they end up with huge penalties!
This article will help you in understanding how is a private limited company formed and how to set up a private limited company in India.
So, Let’s Start.
Let’s first breakdown to understand about Private Limited Company.
“Private” means it restricts the public to buy the company shares whereas in case of a public limited company it allows the public to buy the company shares. The word “Limited” denotes Company’s shareholders which can be minimum 2 and maximum 200 are liable for its debt.
The shareholders can be a person or a company including foreign companies. The shareholders cannot offer their shares to the general public over stock exchange. The minimum capital required for the private limited company according to Section 2, Clause 68, Companies Act 2013 is 1 Lakh.
The main advantage of setting up a private limited company is that if the company goes into the loss, the shareholders are liable to sell the shares to recover the loss. The shareholder’s personal assets are not at the risk which is the main reason why most of the businesses choose the private limited company.
Steps To Form a Private Limited Company in India
Step 1: Obtain a Digital Signature Certificate (DSC)
The first step is to obtain DSC i.e Digital Signature Certificate for the directors involved in the private limited company. The main purpose of the DSC is to sign the eforms . According to, The Information Technology Act, 2000 has provisions for use of Digital Signatures on the documents submitted in electronic form in order to ensure the security and authenticity of the documents filed electronically. This is a secure and authentic way to submit a document electronically. DSC is mandatory for all the directors in the company.
How You Can Obtain DSC?
You can obtain DSC by directly approaching Certifying Authorities (CAs) with original supporting documents, and self-attested copies will be sufficient.
Working Days: 1 to 3 Days.
Step 2: Filing of MOA & AOA, SPICe INC-32
After registering DSC, You need to verify your company name on MCA Portal -> MCA Services -> Check Company Name
Note: Your Company name should not be registered and should not be taken.
If taken, ensure that your company name should not be same as brand name.
next, for name approval there are 2 options:
1.) Run approval: With run (Reserve Unique Name) approval you can ensure whether the name is available or not. But this method doesn’t allows you to resubmit once it is submitted. In case name gets rejected you can resubmit by paying Rs.1000 for each submission.
2.) File through SPICe INCE -32 form: Incorporating a company through Simplified Proforma for Incorporating Company electronically (SPICe -INC-32), with eMoA (INC-33), eAOA (INC-34), is the default option and most companies are required to be incorporated through SPICe only. With SPICe INC-32 you can resubmit 2 times.
Working Days: 7 – 9 Days.
Step 3: Issue the Incorporation Certificate
Once MOA and AOA is approved, you will get incorporation certificate which will include the date of incorporation and PAN number of the company.
Working Days: 1 – 5 Days.
Step 4: GET PAN & TAN Applications
Once you get incorporation certificate, you will get PAN & TAN application by MCA.
Working Days: 1 – 3 Days.
Yeah! Your Company is now registered!
List of Documents required for registration of Private Limited Company in India
To register a private limited company, the following are documents that you need to submit for incorporation.
Affidavit and declaration by first subscriber(s) and director(s)
Proof of Office address (Conveyance/Lease deed / Rent Agreement etc. along with rent receipt)
Copy of utility bills (not older than two months)
Proof of identity & residential address of Directors (Copy of ID proof – PAN Card, Aadhaar Card, Driving License or Passport or Voter ID)
Copy of Address Proof – Bank Statement with transaction of 2 months or Mobile Phone Bill or Landline Telephone Bill
Proof of identity and address of Shareholders.
Benefits of Private Limited Company in India
Separate Legal entity:
Private Limited Company is a legal entity and a juristic person established under the Companies Act. Hence, a company has a range of legal capacities including opening of a bank account, hiring of employees, taking on equity or obtaining licenses and more as an independent corporate entity. The members (Shareholders/Directors) of a company have no personal liability to the creditors of a company for company’s debts.
Private Limited Company has ‘perpetual succession’, meaning uninterrupted existence until it is legally dissolved. A company being a separate legal person, is unaffected by the death or other departure of any member and continues to be in existence irrespective of the changes in ownership.
Private Limited Companies can raise equity funds in India. Companies can also issue equity shares, preference shares, debentures and accept deposits with RBI permission. Banks and Financial Institutions prefer to provide funding to a company rather than partnership firms or proprietary concerns.
Ownership of a business can be easily transferred in a company by transferring shares. The signing, filing and transfer of share transfer form and share certificates is sufficient to transfer ownership of a company. In a private limited company, the consent of other shareholders maybe required to effect share transfers.
Private Limited Company being an artificial person, can acquire, own, enjoy and alienate, property in its name. The property owned by a company could be machinery, building, intangible assets, land, residential property, factory, etc. No shareholder can make a claim upon the property of the company – as long as the company is a going concern.
FAQs On How is a Private Limited Company formed
Q1. How long does it take to register a private company?
On an average, it takes up-to 15 days to register a Private Limited Company subject to document verification by MCA and the processing time is dependent on a case to case basis.
Q2. Who can be a Director of a Company?
Any person over the age of 18 years can become a director in a company. Also, there are no conditions on residency or citizenship. Hence, NRIs and Foreign Nationals can easily start and manage a private limited company in India.
Q3. What are the forms on which Director or Shareholder have to sign to Pvt Ltd Company in India?
Following are the forms on which promoters need to sign, All the forms/formats to be printed on plain A-4 size paper and signature should be preferable with a blue ink pen.
DIR-2 Consent from Directors
INC-9 Declaration form
Q4. Can A salaried person start a Private limited company in India and become a Director?
Absolutely. A salaried employee can become the director in private limited, LLP or OPC private limited company. One needs to check the employment agreement if that allows for such provisions. In a lot of cases, the employers are quite comfortable with the fact that their employee is a director in another company.
Q5. When we register as a company, can we give the home address as company’s registered office?
Yes, one can register the company at their residential address. A utility bill copy of the same will be required.
Q6. Is it necessary to book an Auditor?
Yes, a private limited company must book an auditor, no matter what its revenues. In fact, an auditor must be appointed within 30 days of incorporation. Compliance is important with a private limited company, given that penalties for non-compliance can run into lakhs or rupees and lead to the blacklisting of directors.
Q7. What is MOA and AOA?
These are essential documents for a Company that contains the rules, vision and mission of your organization, and define, among other things, the exact business and the roles and responsibilities of shareholders and directors.
No Doubt, Private Limited Company is a most popular corporate entity for companies and it has many benefits for new companies. Private Limited Company registration process requires lot of commitment which becomes very difficult at the early stage of starting out a company. It is recommended to take the help of professional CA expert.
Source of the content: https://blog.incfo.in/how-is-private-limited-company-formed/
Hi, I am Subrato Mukherjee, I am Professional CA with experience of more than 10+ years. My aim is to help startups and companies to help in various financial needs which are needed to expand the business.