Chartered Accountants
A COMPREHENSIVE GUIDE TO INCORPORATING
A PRIVATE LIMITED COMPANY IN INDIA
Introduction:
– A Private Limited Company, as defined by the Companies Act, 2013, is a type of company
that offers limited liability to its shareholders and has restrictions on ownership.
– This article aims to provide a step-by-step guide to incorporating a Private Limited
Company in India, along with its advantages, disadvantages, and a comparison with other
business structures.
Definition of Private Limited Company:
– A Private Limited Company is a legal entity separate from its owners, known as
shareholders.
– It requires a minimum of two shareholders and can have a maximum of 200 shareholders.
– The liability of shareholders is limited to the amount unpaid on their shares.
– The shares of a Private Limited Company are not freely transferable, and there are
restrictions on the transfer of shares.
Procedure for Incorporation:
1. Obtain Digital Signature Certificate (DSC):
– The first step is to obtain DSC for all proposed directors of the company.
– DSC is required for filing online documents with the Ministry of Corporate Affairs
(MCA).
2. Obtain Director Identification Number (DIN):
– Directors need to apply for DIN, which is a unique identification number assigned by the
MCA.
– DIN can be obtained by filing Form DIR-3 online.
Note – The DIN can be applied separately or along with filing Spice Part-B
3. Name Reservation:
– Choose a unique name for the company and check its availability on the MCA portal.
– Apply for name reservation by filing Form SPICe+ (Part A) along with the requisite fee.
Timeline – Usually 2-10 days, depending on the MCA.
4. Prepare Incorporation Documents:
– Draft the Memorandum of Association (MOA) and Articles of Association (AOA) of the
company.
– Prepare other necessary documents, including the declaration by directors, consent to act
as directors, and registered office address proof.
5. File SPICe+ Form (Part B):
– Complete the online filing of SPICe+ (Part B) form along with the required documents.
– Pay the prescribed registration fee based on the authorized capital of the company.
6. Certificate of Incorporation:
– Once the MCA verifies the documents and approves the application, a Certificate of
Incorporation (COI) is issued.
– The COI serves as conclusive evidence of the existence of the company.
Why is Private Limited Company popular?
– Limited Liability: Shareholders’ liability is limited to the amount unpaid on their shares,
protecting their personal assets.
– Separate Legal Entity: A Private Limited Company has its own legal identity, distinct
from its shareholders.
– Perpetual Succession: The company continues to exist even if its members change,
ensuring continuity of operations.
– Access to Funding: Private Limited Companies can raise funds by issuing shares to
investors.
– Credibility: Private Limited Companies often enjoy higher credibility among
stakeholders compared to other business structures.
Main Advantage of Private Limited Company is to invite investments from angel investors,
venture capitalist, and so on.
MCA.
– DIN can be obtained by filing Form DIR-3 online.
Note – The DIN can be applied separately or along with filing Spice Part-B
3. Name Reservation:
– Choose a unique name for the company and check its availability on the MCA portal.
– Apply for name reservation by filing Form SPICe+ (Part A) along with the requisite fee.
Timeline – Usually 2-10 days, depending on the MCA.
4. Prepare Incorporation Documents:
– Draft the Memorandum of Association (MOA) and Articles of Association (AOA) of the
company.
– Prepare other necessary documents, including the declaration by directors, consent to act
as directors, and registered office address proof.
5. File SPICe+ Form (Part B):
– Complete the online filing of SPICe+ (Part B) form along with the required documents.
– Pay the prescribed registration fee based on the authorized capital of the company.
6. Certificate of Incorporation:
– Once the MCA verifies the documents and approves the application, a Certificate of
Incorporation (COI) is issued.
– The COI serves as conclusive evidence of the existence of the company.
Why is Private Limited Company popular?
– Limited Liability: Shareholders’ liability is limited to the amount unpaid on their shares,
protecting their personal assets.
– Separate Legal Entity: A Private Limited Company has its own legal identity, distinct
from its shareholders.
– Perpetual Succession: The company continues to exist even if its members change,
ensuring continuity of operations.
– Access to Funding: Private Limited Companies can raise funds by issuing shares to
investors.
– Credibility: Private Limited Companies often enjoy higher credibility among
stakeholders compared to other business structures.
Main Advantage of Private Limited Company is to invite investments from angel investors,
venture capitalist, and so on.
Why is Private Limited Company not preferred?
– Compliance Requirements: Private Limited Companies are subject to extensive
regulatory compliance requirements, increasing administrative burden and costs.
– Limited Control: Shareholders may have limited control over the company’s operations,
especially in larger companies.
– Restrictions on Ownership: There are restrictions on the transfer of shares in a Private
Limited Company, limiting liquidity.
– Restricted Transactions: Like in normal proprietor or partnership business, the
withdrawals and deposits of amounts by owners are not at all easy and have compliances
attached to it.
Documents Required for Incorporation:
1. Copy of Pan Card & Aadhaar Card
2. Identity Proof – Voter Id / Passport / Driving Licence
3. Address Proof – Bank Statement / Electricity Bill / Telephone Bill / Mobile Phone Bill
– Not Older Than 2 Months
4. Passport size Photograph
5. Company’s Address Proof –
1. – If owned then Sale Deed
2. If Rented/Leased – notarized copy of Rent/Lease Agreement/ No Objection
Certificate alongwith Electricity bill
6. Digital Signatures
Minimum Requirement for Incorporation of Private
Limited Company
1. Minimum 2 Shareholders & Directors (both can be same)
2. One of the Directors must be Indian Resident
3. Unique Company Name – Two prospective names of the company
4. Company’s Registered Office
5. No Minimum Capital Requirement
6. Min. 1 Lakh Rupee of Authorized Capital
– Compliance Requirements: Private Limited Companies are subject to extensive
regulatory compliance requirements, increasing administrative burden and costs.
– Limited Control: Shareholders may have limited control over the company’s operations,
especially in larger companies.
– Restrictions on Ownership: There are restrictions on the transfer of shares in a Private
Limited Company, limiting liquidity.
– Restricted Transactions: Like in normal proprietor or partnership business, the
withdrawals and deposits of amounts by owners are not at all easy and have compliances
attached to it.
Documents Required for Incorporation:
1. Copy of Pan Card & Aadhaar Card
2. Identity Proof – Voter Id / Passport / Driving Licence
3. Address Proof – Bank Statement / Electricity Bill / Telephone Bill / Mobile Phone Bill
– Not Older Than 2 Months
4. Passport size Photograph
5. Company’s Address Proof –
1. – If owned then Sale Deed
2. If Rented/Leased – notarized copy of Rent/Lease Agreement/ No Objection
Certificate alongwith Electricity bill
6. Digital Signatures
Minimum Requirement for Incorporation of Private
Limited Company
1. Minimum 2 Shareholders & Directors (both can be same)
2. One of the Directors must be Indian Resident
3. Unique Company Name – Two prospective names of the company
4. Company’s Registered Office
5. No Minimum Capital Requirement
6. Min. 1 Lakh Rupee of Authorized Capital
Post Incorporation Formalities & Requirements of Private
Limited Company:
Once a Private Limited Company is successfully incorporated in India, there are several post-
incorporation formalities and ongoing requirements that need to be fulfilled to ensure
compliance with legal regulations and smooth operation of the business. Here’s a detailed
overview:
1. Obtain PAN and TAN:
– Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account
Number (TAN) for the company from the respective authorities. These are essential for
taxation purposes. Usually done while incorporating the company.
2. Conduct First Board Meeting:
– Hold the first board meeting of the company within 30 days of incorporation. Discuss
matters such as appointment of directors, adoption of financial year, opening of bank
accounts, etc.
3. Open Bank Account:
– Open a bank account in the name of the company. The company’s PAN and Certificate of
Incorporation (COI), Memorandum of Association (MOA) & Articles of Association
(AOA) are required for opening the account.
4. Appointment of Auditors:
– Appoint a statutory auditor within 30 days of incorporation. The auditor must be a
practicing Chartered Accountant in India. If not appointed by the Board of Directors (BOD)
then has to be appointed within 90 days by shareholders of the company.
5. Share Certificate Issuance:
– Issue share certificates to the subscribers of the memorandum and subsequent
shareholders within 60 days of incorporation. These certificates represent ownership of
shares in the company.
6. Stamp Duty Payment:
– Pay stamp duty on the issuance of share certificates and other documents, as applicable in
the respective state where the company is registered.
Limited Company:
Once a Private Limited Company is successfully incorporated in India, there are several post-
incorporation formalities and ongoing requirements that need to be fulfilled to ensure
compliance with legal regulations and smooth operation of the business. Here’s a detailed
overview:
1. Obtain PAN and TAN:
– Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account
Number (TAN) for the company from the respective authorities. These are essential for
taxation purposes. Usually done while incorporating the company.
2. Conduct First Board Meeting:
– Hold the first board meeting of the company within 30 days of incorporation. Discuss
matters such as appointment of directors, adoption of financial year, opening of bank
accounts, etc.
3. Open Bank Account:
– Open a bank account in the name of the company. The company’s PAN and Certificate of
Incorporation (COI), Memorandum of Association (MOA) & Articles of Association
(AOA) are required for opening the account.
4. Appointment of Auditors:
– Appoint a statutory auditor within 30 days of incorporation. The auditor must be a
practicing Chartered Accountant in India. If not appointed by the Board of Directors (BOD)
then has to be appointed within 90 days by shareholders of the company.
5. Share Certificate Issuance:
– Issue share certificates to the subscribers of the memorandum and subsequent
shareholders within 60 days of incorporation. These certificates represent ownership of
shares in the company.
6. Stamp Duty Payment:
– Pay stamp duty on the issuance of share certificates and other documents, as applicable in
the respective state where the company is registered.
7. Statutory Registers and Records:
– Maintain statutory registers and records as per the Companies Act, 2013. These include
registers of members, directors, shares, debentures, etc. Proper maintenance of these
registers is crucial for compliance.
8. Appointment of Key Personnel:
– Appoint key personnel such as Company Secretary, if required, and other officers as per
the company’s organizational structure.
9. Obtain Necessary Licenses and Permits:
– Obtain any specific licenses or permits required for the business operations, depending on
the nature of the business activity and industry sector.
10. Apply for Commencement of Business – (INC-20A):
– The company must file Form INC-20A within 180 days from the date of incorporation as
proof of commencement of business. Also, a proof of deposit of the paid-up share capital by
the subscribers needs to be attached in the e-Form. It is mandatory to file Form INC-20A as
failure to file Form INC-20A within the stipulated time may attract penalties, and the
Registrar of Companies (ROC) may take further action, including striking off the company’s
name from the register.
By adhering to these post-incorporation formalities and ongoing requirements, a Private
Limited Company can operate smoothly and remain compliant with applicable laws and
regulations, thereby safeguarding its interests and reputation in the business environment.
Comparison of Business Structures:
Aspect Proprietorship Partnership LLP OPC Private
Limited
Company
Legal Status Unincorporated Unincorporated Incorporated Incorporated Incorporated
Liability Unlimited Unlimited Limited Limited Limited
Minimum 1 2 2 1 2
– Maintain statutory registers and records as per the Companies Act, 2013. These include
registers of members, directors, shares, debentures, etc. Proper maintenance of these
registers is crucial for compliance.
8. Appointment of Key Personnel:
– Appoint key personnel such as Company Secretary, if required, and other officers as per
the company’s organizational structure.
9. Obtain Necessary Licenses and Permits:
– Obtain any specific licenses or permits required for the business operations, depending on
the nature of the business activity and industry sector.
10. Apply for Commencement of Business – (INC-20A):
– The company must file Form INC-20A within 180 days from the date of incorporation as
proof of commencement of business. Also, a proof of deposit of the paid-up share capital by
the subscribers needs to be attached in the e-Form. It is mandatory to file Form INC-20A as
failure to file Form INC-20A within the stipulated time may attract penalties, and the
Registrar of Companies (ROC) may take further action, including striking off the company’s
name from the register.
By adhering to these post-incorporation formalities and ongoing requirements, a Private
Limited Company can operate smoothly and remain compliant with applicable laws and
regulations, thereby safeguarding its interests and reputation in the business environment.
Comparison of Business Structures:
Aspect Proprietorship Partnership LLP OPC Private
Limited
Company
Legal Status Unincorporated Unincorporated Incorporated Incorporated Incorporated
Liability Unlimited Unlimited Limited Limited Limited
Minimum 1 2 2 1 2
Aspect Proprietorship Partnership LLP OPC Private
Limited
Company
Members/Owners
Maximum
Members/Owners
NA 20 No Limit 1 200
Continuity of
Existence
Dependent on
owner
Dependent on
agreement
Perpetual Perpetual Perpetual
Regulatory
Compliance
Minimal Moderate Moderate Moderate Extensive
Transferability of
Ownership
Not applicable Restricted Restricted Restricted Restricted
Conclusion:
Incorporating a Private Limited Company in India offers several benefits, including limited
liability, perpetual succession, and access to funding. However, it also entails compliance
requirements and restrictions on ownership. By following the prescribed procedure and
understanding the advantages and disadvantages, entrepreneurs can make informed
decisions regarding their choice of business structure.
Limited
Company
Members/Owners
Maximum
Members/Owners
NA 20 No Limit 1 200
Continuity of
Existence
Dependent on
owner
Dependent on
agreement
Perpetual Perpetual Perpetual
Regulatory
Compliance
Minimal Moderate Moderate Moderate Extensive
Transferability of
Ownership
Not applicable Restricted Restricted Restricted Restricted
Conclusion:
Incorporating a Private Limited Company in India offers several benefits, including limited
liability, perpetual succession, and access to funding. However, it also entails compliance
requirements and restrictions on ownership. By following the prescribed procedure and
understanding the advantages and disadvantages, entrepreneurs can make informed
decisions regarding their choice of business structure.