PROCESS OF INCORPORATION OF PRIVATE LIMITED COMPANY IN INDIA

Introduction

The Private Limited Company is a juristic person, registered and governed under the Companies Act 2013. As the name suggests, liability to its members remains limited. The steps for incorporation of an India Private Limited Company are pretty long in terms of the number of steps due to statutory requirement under Companies Act, 2013 and Rules framed thereunder by MCA. Minimum authorized capital of Rs.1 Lakh is required for Private Limited Company registration in India.

What is Private Limited Company?

According to Section 2(68), Companies Act 2013, “A Company is said to be a Private Company when a minimum paid-up Share Capital is prescribed and by its Article:

1. Restricts the Right to transfer its shares;
2. Except in case of One Person Company, Limits the number of its members to 200, Excluding

• Persons who are in the Employment of the Company; and
• Any person who, while in the employment of the company was a member of the company and has since become a member and remains a member at a time when the employment has ceased;

3. Prohibition of public issue of company securities

What are the features of a private limited company?

1. Separate Legal Entity: The existence of a company is different from owners, and it alone is capable of contracting, holding assets, suing, or being sued.
2. Limited Liability: It means that in the case of a debt or failure of business, shareholders’ assets can’t be threatened. Thus for example on bankruptcy of the company, the shareholders can’t lose more than the value of the shares held by them.
3. Minimum and Maximum No. of Members: The minimum and maximum number of members in a private limited company is prescribed as 2 and 200 respectively.
4. No Public Trading of Shares: There is no public trade of a Private Limited Company’s shares on the stock exchange. They can only be transferred privately.
5. Compliance Requirements: A private limited company has to comply with various regulatory compliances under the Companies Act, 2013, relating to filing annual returns, maintaining statutory registers, and the like.
6. Taxation: These companies are taxed at corporate tax rates. Corporate tax is paid on the profit earned by the Company.

WHAT IS THE PROCEDURE OF INCORPORATION OF PRIVATE LIMITED COMPANY IN INDIA?

1. Name approval: This is the provision for the initial reservation of the unique, compliant name before proceeding to do the incorporation. It avoids the reservation of the names reserved or being used by other firms and checks compliance of the name with the regulator.

Modes of application of availability of names either through run service or in spice+ form fill in the particulars herein and pay the prescribed fees. The same shall be examined by the mca and it will normally respond to such application within few days. If approved, the name gets reserved for twenty days from its date of approval.

2. Digital Signature Certificate: On one hand, issuance of a digital signature certificate would be compulsory in place of digitally signing of various forms and documents proposed to be uploaded at the time of incorporation of a company. DSC is a required component for authenticating their digital submissions in respect of Directors and authorized signatories.

DSC issuance: Provided that the documents are in order, DSC is issued in the form of a USB token containing the digital signature. Now, this form of USB token issued to the subscriber under discussion shall be used by the applicant for signing, if required through a digital signature, in any document filed during the process of incorporation and other MCA filings.

3. Director Identification Number: The minimum number of directors required is two. DIN is a unique number to the Directors. This brings much needed transparency and accountability. There will be no duplicity of identity of the Directors of the Company, hence the records will be crystal clear and accurate reducing frauds or misunderstanding.

There are two ways of filling a form of DIN:

• E-filing of Form DIR-3 through the MCA portal: Identity Proof and Residence Proof to be attached with the form, which would be scanned along with digital signatures.
• DIN through SPICe+ DIN is issued to a maximum of three proposed directors who do not have a DIN. Then in case more than three proposed directors require a DIN then the company shall be incorporated only with three directors. Remaining directors not having a DIN at time of incorporation may apply separately for a DIN by using DIR3 form after incorporation.

4. Drafting of MOA and AOA: These are document preparations; they are very key documents during incorporation of a company. They describe or delineate area of operation and how a company shall be governed. These documents provide legal base to observe that a company confines its activities within the law and still maintains a structured management system base.

MEMORANDUM OF ASSOCIATION: It describes objects of the company; it states what ‘scope of operation’ it will conduct, and thus, it pertains to what is permitted by the company.

ARTICLES OF ASSOCIATION: These are the rules that govern how the internal management of the company and its relation with different members—roles, rights, and responsibilities of directors and shareholders are run.

5. Recap Paper:

• PROOF OF IDENTITY AND ADDRESS OF ALL DIRECTORS AND SHAREHOLDERS.
• Identity Proof: In case of Indian Nationals -PAN card is mandatory and in case Foreign Nationals- PassPort.
• Address Proof: It may be Aaadhhar card, voter ID, passport, utility bills or bank statements.
• DECLARATION BY DIRECTOR
• Form DIR-2 – letter from the person in writing consenting to act as director of the Company.
• Form INC-9 -Declaration to the effect that he is not disqualified to act as director under the Act.
• PROOF OF REGISTERED OFFICE ADDRESS
• The same address shall also be the registered address for all correspondences w.r.t regulators. Certain documents shall have to be inducted.
• Mandatory Documents: Utility bill not older than two months electricity bill, water bill, telephone bill, NOC from the Owner: No Objection Certificate by the owner of premises if the registered office is situated in a rented or leased property.

6. Filing of Incorporation Documents: The filling steps are integrated with a number of steps as under:

• The SPICe+ form has twoʀ two parts – Part A and Part B.

Part A shall be for reservation of the company name: the reservation of the name shall be such that the proposed name to be given shall be unique and also in conformity with the naming guidelines issued by MCA.

Part B substantiates the actual process of incorporation. It includes within itself the incorporation of the company, the generation of DINs for a maximum of three directors, applying for the company’s PAN and TAN.

• INC-33: e-Memorandum of Association and INC-34: e-Articles of Association

The SPICe+ form also includes the filing of e-Memorandum of Association and e-Articles of Association by means of forms INC-33 and INC-34, respectively.

• The AGILE-PRO-S form allows applicants to simultaneously register with GST, ESIC, and EPFO.

On filing, the Registrar of Companies shall go through the forms very carefully, and only after being satisfied that everything is in order, he shall issue a Certificate of Incorporation in which the Corporate Identity Number of the company shall be mentioned. Together with this number, the company will be incorporated from that date.

7. CERTIFICATE OF INCORPORATION: Certificate of Incorporation acts as the legal proof behind the company’s incorporation. It means the company is duly registered is now the legitimate person under Companies Act, 2013. These contain the information like PAN, CIN and TAN.

WHAT ARE THE POST-INCORPORATION COMPLIANCES?

• The company shall hold a meeting of the Board of Directors not later than thirty days from the date of incorporation.
• The Company shall keep proper books of accounts that shall give a true and fair view of the state of affairs of the Company.
• First auditor shall be appointed within 30 days from the time for which the company is incorporated by BOD.
• Company shall maintain statutory registers at its registered office.
• The certificate of commencement of business shall be obtained within 180 days. There has to be filing of disclosure made by directors of the company showing that every subscriber has paid amount due on the shares.

Conclusion

The whole process of incorporation has been made easier with the introduction of integrated forms, including SPICE+. There are also requirements for compliance that state the filing of Form INC-20A for confirmation of paid-up capital and the opening of a bank account in the name of the company once incorporated. In effect this process grants legal recognition to the company, as well as its promoters, employees, and customers with protection sought for the company and at the same time result of hassle-free and effective functioning of businesses.