Private Limited Company is a separate legal entity and excellent form of business which gives you corporate identity as well as limited liability. It stands between a partnership form of organization and widely owned public company. It requires a minimum of two members and maximum number can be two hundred. A private limited company has the advantages of partnership namely flexibility, a combination of abilities & more such features. At the same time, it has benefits of limited liability, greater stability, and legal entity.
Key Advantages of Forming a Private Limited Company
- A Private Company is a legal entity separate from its owner and has a vast legal capacity.
- It can own property and also incur debts under its name. The members of the company have no liability to the creditors of the company for such debts.
- It has perpetual succession and has continuous existence until it is legally dissolved.
- A Private limited company enjoys better avenues for borrowing funds. Banks and financial institution prefer to assist such companies.
- Shares of the Private Company cannot be traded. However, they can be transferred by signing Share Transfer Form.
Step by Step Procedure to Incorporate a Private Limited Company
Step 1 – Obtain Directors’ Identification Number (DIN)
Every applicant who would become the Director of the Company must have a DIN. The application for DIN can be made online through Ministry of Corporate Affairs(MCA) website. The application can be filed by submitting E-form DIR-3. A nominal fee of Rs. 100/- has to be paid for each application. There is no physical submission, and the entire process is online. Following are some important points in this regard –
- Proof of Identity – In case of Indian Nationals – PAN card, while in case of Foreign Nationals – Passport
- Proof of Residence – Passport, Election (voter identity) card, Ration card, Driving license, Electricity bill, Telephone bill or Bank account statement. The telephone bill, electricity bill or bank account statement should not older than 2 months in the case of Indian Nationals and 1 year in the case of Foreign Nationals.
- Affidavit as per Annexure 1 of DIN Rules has to be made by applicants on Stamp Papers, which shall also be notarized.
Step 2 – Register Digital Signature of Directors
The applicants whose signatures would be placed on the application forms must have a Class 2 or a Class 3 Digital Signature Certificate (DSC) from an authorized certifying agency. This DSC has to be registered on the MCA website.
Step 3 – File Form INC-1 for Name Availability
Once the DSC has been registered on the MCA website, the applicants have to fill up E-Form Form INC-1. This form is for reservation and approval of name of the Company. The applicants can place maximum 6 choices for approval of name. The name cannot be similar to any existing company or LLPs. On MCA portal, one can freely search the names of existing companies or LLPs. For uploading E-Form INC-1, the applicants have to register on MCA Portal.
Step 4 – Draft the MOA and AOA of the Company
The Memorandum of Association (MOA) & the Articles of Association (AOA) are the two essential documents of every incorporated company. MOA is the root document that contains the basic details of the company e.g. Name, Registered Office, Main Object & Ancillary objects of the company, Liability of the Members, Share Capital of the company, details of the Shareholders, etc. AOA contains all the rules & regulations of running the company e.g. about Shareholders meetings, Voting rights, Board of Directors, Directors’ meetings, Key Managerial Personnel, etc. These documents need to be developed by Professionals and must be verified thoroughly since any change in these documents after registration would require calling a General Meetings and increase the procedures involved.
Along with MOA and AOA is a Subscribers sheet where all Shareholders of the Company sign in the presence of witnesses.
Step 5 – Declarations in Form INC-8, INC-9 & INC-10
Form INC-8 is a declaration by the Professional involved in Incorporation of the company that all the requirements of the incorporation have been fulfilled. Form INC-9 is a declaration by the Directors of the company that they are not convicted by any offense or found guilty of any fraud and all information filed with respect to incorporation are correct and complete. Form INC-10 is for verification of signatures of the applicants. All the above forms are to be notarized before proceeding to next step.
Step 6 – Submit Form INC-7, INC-22, and DIR-12
Once the name has been approved, the applicants have to apply for incorporation of the company by submitting E-Forms INC-7, INC-22, and DIR-12. INC-7 is an application for incorporation of the company. INC-22 is for details regarding the registered address of the company. DIR-12 is for submitting particulars of directors and key managerial personnel being appointed. Requirements with respect to these forms are –
- MOA and AOA along with subscribers sheet
- Affidavit for non-acceptance of deposit from public by the company, since a Private Limited Company is not allowed to accept deposits from Public.
- Details of the address of Police Station under whose jurisdiction the registered office of the company is situated.
- Utility Bill (not older than 2 months) of the registered office premise.
- Rent Agreement / Conveyance/Lease deed.
- No Objection Letter (NOC) from the owner of the premise, if taken on lease.
- Form DIR-2 for consent from every proposed director to act as the director of the company.
- Details of other Companies / LLPs, if any,
On successful submission of documents, Certificate of Incorporation shall be issued by the Registrar of Companies.
Cost Involved –
Incorporation of a Private Limited Company costs approximately INR 15,000.
Time Required –
It takes around 20 – 25 days for incorporation of a Private Limited Company, subject to the issues involved.
Useful Links for Incorporation –
- Download E-Form DIR-3 for obtaining DIN
- List of Authorized DSC Certifying Authorities
- Register DSC on MCA Website
- Company Names Availability Search Database
- Download E-Form INC-1 for Reservation of Name
- Download E-Form INC-7 for Incorporation of Company
- Download E-Form INC-22 for Details of Registered Address
- Download E-Form DIR-12 for Details of Directors
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