Private Limited Company's Registration

All About Private Limited Company - Registration, Benefits, Compliance, Required Documents and mores

Introduction

Starting a private company is a dream of many and is one of the highly recommended ways to begin a business in India. A company is a legal entity that is registered for business purposes and with a view to attaining certain goals with profits. There are different types of companies such as proprietorships, public entities, LLP, and so on. One can choose the firm based on the financial and ownership needs he/she needs.

A Private Limited Company (PLC) is the most commonly registered company in business trends. It is a separate entity that is held privately and offers limited liability. A Private Limited Company when registered and gives us all the rights to do business in any part of India or abroad. So many people who are all entrepreneurs, in start-ups, and those with new business proportions and ideas all choose to register a Private Limited Company which gives more credibility.

Table of Contents:

• Eligibility Checklist
• Benefits of a Private Limited Company
• Disadvantages
• Document Required for Registration of a PLC
• Capital Required to start a PLC
• Registration Process of a Private Limited Company in India
• Compliances of a PLC
• PLC - Important Points to Remember

Eligibility Checklist:

A Private Limited Company is more than a partnership firm but not a public company as the shares are limited to the company and cannot be traded to the public. Section 2 (68) of the Companies Act, 2013 governs any Private Limited Company. However, there are certain rules and regulations that any company that needs registration as a PLC must follow. The eligibility criteria are as follows,

• A Private Limited Company must have at least two directors and a minimum of two shareholders.
• There can be a maximum of 15 directors and up to 200 shareholders according to their needs.
• The director can also be a shareholder in a Private Limited Company.
• It must also have a registered office which is situated in India. It need not be only a commercial place but if not a commercial and rented then a NOC is compulsory, which can be obtained by the owner of the place.
• It has to have a unique name that isn’t already taken as a company name.
• It is also to be one director and one shareholder of the two to be an Indian resident and a Citizen of India. However, there are no restrictions on foreign shareholdings and direct ownership (FDI).
• 90% of the shares are supposed to be issued within a certain period of time. If not, then the company will no longer be able to continue the business. In a PLC, shares can be allotted to them without having any minimum subscription.

The above-mentioned criteria must be met for the registration of a Private Limited Company in India.

Benefits of a Private Limited Company:

There are striking advantages to a Private Limited Company due to which most businesses choose to register as a Private Limited Company.

Limited Liability

It has limited liability. To explain with ease, it is a major advantage to all the shareholders as even if the company suffers a major loss or so the personal holders of a shareholder remain untouched. Only the investment amount of a shareholder is taken into account and he/she is not liable to be responsible for all the losses.

Fundraising

Fundraising is easier and a Private Limited Company has a lot of options and ways to raise the funds that are needed. They can raise money from shareholders, public equity funds, investors, banks, foreign funds, angels, venture capital funds, and others too.

Foreign Participation

Foreign participation is allowed in a Private Limited company which is a privilege not obtained by a one-person company, partnership firm, or a proprietorship firm.

Separate Legal Entity

A Private Limited Company is always considered to be a separate legal entity and a juristic person. Hence, it, by all means, can acquire property, hire people, and so on. The directors and shareholders of the company are never liable for the company’s liability.

A long-time existence

A PLC will not cease to exist until it is officially dissolved and will keep working and identified as an establishment. Hence, the presence or absence of anyone, death, or departure of the members of a company will not affect the company.

Prospectus

This is nothing but the statement of the company affairs from which the public can notice. But it is not considered necessary in PLC as the public is not invited to subscribe to the company shares.

Minimum share of capital

The minimum share of the capital of a public company is more but the minimum share of the capital of a PLC is less and is only Rs.100000 while even that isn’t compulsory when it comes to a Private Limited Company.

Confidential Information

A private company is much better in having any important details related to the business more secure and confidential. Details such as legal settlements, and executive compensation remain confidential.

Management & Decision Making

The number of shareholders is less in a Private Limited Company and more in a public company. So comparatively, the management and decision-making are discussed with fewer people making it easier without any complexity than it already is.

Stock Market

There is not much concern based on stock markets for a Private Limited Company and not much pressure is exerted on them so it is an added advantage when compared to a public company.

Apart from the major benefits mentioned above, there are a few more impressive characteristics of a Private Limited Company (PLC).

• It can be easily set up and is recommended for start-ups and entrepreneurs.
• A PLC always seems to attract more customers and can raise funds with ease.
• It can procure more bank credits, and stability and the potential to grow and expand the business is very high if planned and done right.
• It has easy authentication as the details are all mentioned in the public database which gives it more credibility.
• There can be direct foreign investments in a Private Limited Company.

Disadvantages:

With all these advantages taken into account, there also can be slight discomfort.

• Compliances:
  It is mandatory for a PLC to maintain many compliances which do not consider the turnover or see if the company is working or not. So, this will have a recurring cost on the company every year.

• Less Transparency:
  There is also less transparency in Private Limited Company when compared to other firms which might make the investors reconsider while investing in their businesses.

• Borrowing Money:
  Directors of a company must agree to pay the debts personally in case any loss occurs in a company and so this makes it difficult in borrowing money.

• Shares:
  Selling of shares in a Private Limited Company is more difficult when compared to others as it has its own confidentiality and also needs the approval of shareholders which makes this process a bit slow.

Documents Required for Registration of a PLC:

1. The directors must submit identification proof. If the director is Indian then a PAN card is asked and if he/she is a foreign national then a passport is mandatory.

2. The directors must also submit documents to prove their current addresses. An Indian can submit a Passport, Aadhar card, Ration card, driver’s license, or voter ID. Foreign nationals can submit their passport, residency card, or their bank statement for proof.

3. Also, proof of their current residence has to be submitted. An Indian or a foreign national can give their bank statement, phone bill, or their electricity bill.

4. If one of the company's shareholders is a company based out of India or abroad then, address proof of the company, incorporation certificate of the company, and the board resolution authorizing investment must be submitted.

Capital required to start a PLC:

A PLC can be started with very little capital. However, the face value of a share, authorized capital, and the paid-up capital have to be thought over while determining the capital. The face value share is the price for one share in a company. The authorized capital is the total value of shares that are to be given to a shareholder. Paid-up denotes the shares issued to the shareholder taking into account the amount that they have deposited and is less than the authorized capital.

Registration Process of a Private Limited Company in India:

Registering a company is very important as your company will benefit more when compared to the companies that are not registered. Registration of a Private Limited Company involves the following steps.

Step 1:  Application for DSC (Digital Signature Certificate)

Obtaining the DSC is the initial step toward registering a PLC. DSC is required as all the forms and processes are done online. All the directors are supposed to sign the Memorandum of Association (MOA) and Articles of Association (AOA) using a digital signature. Directors have to submit their identity proof and finish a video KYC process to obtain a digital signature. In case the director is a foreign national, a passport and other necessary documents must be apostilled by a local embassy.

Step 2:  Application for DIN (Director Identification Number)

DIN is an identification number given to a director of a company. It is considered mandatory for a director to have a DIN and only one DIN is assigned to each director. There are two ways to get a Director Identification Number. The DIR-3 can be filed if a director of one company has to establish a new company but this process is outdated since 2018. A form called SPICe INC 32 has to be filled with all the details but needs three directors. If there are more they can be added later on.

Step 3:  Selection of the Company’s Name

This is the most important process in registering a company. The name can be selected using the RUN form (Reserve Unique Form). According to this form, the name can be selected only once but after 2018 there is a relaxation which says that there can be two names and a chance of re-submission. Another faster method for the selection of the name is by using the SPICe INC 32 Form.

According to this form, along with the other details, the chosen company name is also submitted. The company will be registered if the name is approved. But, if there is any problem in the name selection then only one chance will be given and if that fails too then the entire process will have to be repeated all over again. It will be beneficial if the suffix of the name is Private Limited the second part will have the business works mentioned in some way.

Step 4:  EMOA (Memorandum of Association) and EAOA (Article of Association)

The MOA and EOA have to be signed by the directors and they will be using the DSC. It is done digitally and it is only obtained by a practicing Chartered Accountant, a Company Secretary, or a lawyer. This MOA and EOA are to be attached to the form for registration. PAN and TAN are also required for a company. It used to be registered separately but now it is also added in the form and will be issued along with the registration.

Step 5: Certification of Incorporation

If all the given documents are perfect with no violations then they will be approved, and registered and a certificate called Certificate of Incorporation will be given.

In addition to these procedures, PAN and TAN are mandatory for the company. This process does not take too long and might take around 10 days to be finished and can be done online easily.

Note: A registered office need not necessarily be a commercial office space, it can be a residence too

Compliances for a PLC:

There are a lot of compliances that need to adhere to after the registration of a company. They are listed below...

• Chartered Accountant:

Auditors are a necessity for any company. It is mandatory that any newly registered company must appoint a Chartered Accountant who is licensed and also currently practicing. This particular CA must also be registered with the ICAI. This has to be done within 30 days of incorporation of the company.

• DIN (Director Identification Number):

As you already know, it is mandatory for a director to have a Director Identification Number. So, after incorporation, the director has to go through the verification of DIN, i.e. DIN KYC every year. This is done to update the address and communication details in the DIN.

• Annual Affairs to the MCA:

The Ministry of Corporate Affairs is responsible for the financial statements of the company. It is mandatory for a company to file its annual financial statements to the Ministry of Corporate Affairs. If a company is incorporated between January and March, then it can alone file the financial statements of these months together with the next financial year.

• Income Tax Filings:

Just like others, here also income tax must be filed periodically. For a PLC it is being filed under ITR 6. It is necessary to file it before the due date with a digital signature and it does not have anything to do with the incorporation date.

• Annual ROC Filing:

A company is supposed to file the annual returns and the audited financial statements to the ROC (Register of Companies). Under Section 92, it is mandatory to file annual returns and statements. After the annual general meeting takes place, this should be filed between 30 to 60 days.

• Profit & Loss Statement, Balance sheet:

All companies need to maintain a balance sheet and a profit and loss statement. The details of what and how much a company owes at a certain period will be maintained in the balance sheet. It will give a view of the financial status of a company. The profit and loss statement will have the details of a company’s expenditures, revenues, and costs for a certain period of time. It gives insight into the company’s revenue and helps to increase profits and to reduce losses.

• Current Account:

A current account in the bank must also be opened within 180 days of incorporation of the company and the subscription amount must be deposited. The incorporation certificate, KYC of the directors, address proof, and board resolution authorizing the directors for opening a current account is needed to open a current account in the name of the company in a bank.

• Residency of the Company:

The company must have a registered office in India and it can also be changed later. If so, the details must also be corrected with the new address.

• GST:

If the company crosses a certain turnover then a GST registration is a must. The company must be registered for GST.

PLC- Important points to remember

• A Private Limited Company is a legal entity in itself.
• There must be at least two directors and two shareholders in a PLC.
• Foreign Participation can be involved in a Private Limited Company.
• The process of registration can be done in around 10 days.
• No minimum caption is compulsory for a Private Limited Company.
• A lot of compliances must be followed after the incorporation of a company.
• There is also a penalty if the compliances are not followed.
• A company stays running until it is officially dissolved and does not have effects because of the members.
• A Chartered Accountant is necessary to get the Digital Signature Certificate.
• A residence office is not compulsorily to be a commercial space.

Conclusion:

A Private Limited Company has a lot of benefits when compared to all the other firms and can offer much more. It is a very simple process that can be done and registered in a short period of time with expert guidance from FreeTaxFiler. It gives a lot of scope and opportunities for interested entrepreneurs and many more who are willing to launch their own businesses.

Frequently Asked Questions:

1.What is a PLC?

A Private Limited Company in India is a legal entity when registered and it gives us all the rights to do business in any part of India or abroad. So many people who are entrepreneurs, in start-ups, and those with new business proportions and ideas all choose to register a Private Limited Company which gives more credibility.

2. What is a partnership firm?

A partnership firm is when two or more partners mutually agree to start and manage the same business. This can have a minimum of two partners and a maximum of fifty partners.

3. What is an LLP?

An LLP (Limited Liability Partnership) is also an establishment that has the features of a partnership but has similar liabilities to a company with designated partners.

4. Which companies are transferable and which are not?

Both the LLP and company can be transferred. A partnership can be transferred only if it is not registered under ROF and a proprietorship cannot be transferred.

5. When can a current account be opened?

A current account in the bank must also be opened within 180 days of incorporation of the company and the subscription amount must be deposited. The incorporation certificate, KYC of the directors, address proof, and board resolution authorizing the directors for opening a current account is needed to open a current account in the name of the company in a bank.

6. How many members are needed to start a PLC?

Two directors and two shareholders are mandatory for registering a PLC. It can extend to a maximum of 15 directors and 200 shareholders.

7. What are the benefits of PLC?

Foreign funds, more credibility, easy setup, and less liability are some of the benefits of a PLC.

8. What are the different forms of registration of PLC

There are four types of PLC. They are a proprietorship firm, partnership firm, OPC Registration and LLP Registration.

9. What is the time limit for registering a PLC?

The time needed for registering a Private Limited Company is rather less. It is done easily online with the right documents in around 10 days.

10. Can family members be registered in a company?

Yes, it is possible to register family members in a PLC. It can also be considered to be more trustworthy and transferable later on.