Private Limited Company Registration in India- An overview

Private limited company registration in India is the most popular and legally structured business. The process of Private Limited company registration is prescribed under the Companies Act 2013, which is issued by the Ministry of Corporate Affairs (MCA). It is the most famous legal structure for doing business in India amongst entrepreneurs as it provides several benefits compared to other structures like proprietorship and Limited Liability Partnership (LLP). Pvt Ltd company registration process involves various legal compliances with the Registrar of Companies, and it is a complex exercise to complete under the MCA framework. 

How to choose the right business structure

India is the 5th largest economy in the world and aspires to become a USD 5 Trillion economy in the next few years. Therefore, the world is focusing on India for business opportunities. India is 2nd when it comes to no. of start-ups in a FY. Aspiring middle-class people dream of starting a business; therefore, choosing the right business structure is vital to running a business. Whether you want to start your business or grow your existing business, it is important to understand these options as this will have an impact on compliance requirements related to taxation, management & paperwork requirements, companies Act 2013, Goods and Service tax, fundraising abilities & scalability. Partnerships & Sole Proprietorships are comparatively easy to start, but these are less complex and lack limited liability protection. Private Limited company registration is considered a more formal structure for doing business in India.

Pvt Ltd Company is required to audit their books of accounts every year despite their turnover. Abiding by this legal compliance requires spending more money on auditors, tax filing experts & accountants. Entrepreneurs must clearly understand the legal compliances they are willing to deal with.

Types of business structure in India

Below are the five most popular business structures in India.

1. Private Limited Company:  Private Limited Company registration in India is a framework where business is privately held by the shareholders, which cannot be less than 2, and the maximum number of shareholders cannot be more than 200 under this framework as per Companies Act 2013.
2. Public Limited Company: This type of Company registration in India is incorporated under the Companies Act 2013 and has a separate legal existence & its members' liability is limited to the extent of their shareholding. These types of companies have a minimum of 7 shareholders, and there is no limit on the maximum number of shareholders.
3. OPC or One Person Company: A one-person company has all the features of a Company, like limited liability, perpetual succession & a separate legal entity. It is suitable for businesses with small operations and one Director.
4. LLP or Limited Liability Partnership:  A Limited Liability Partnership is an alternative corporate business that gives the benefits of limited liability of a Company & the flexibility of a Partnership. It is liable to the full extent of its assets, but the liability of the partners is limited to their agreed-upon contribution to the Limited Liability Partnership.
5. Sole Proprietorship: This is a business that is completely owned & controlled by a single person, a Company or a Limited Liability Partnership. The business owner has an unlimited liability, which means the owner is personally liable for all the debts & losses of the Sole Proprietorship.

Documents Required for a Private Limited Company Registration in India

1. Documents required for Directors of the Company
   
   1. Aadhar and PAN Card of the Directors.
   2. Latest passport-sized photos of all the proposed Directors.
   3. Identity proof of the Directors.
   4. Address Proof of the Directors
2. Proof of Registered Office
   
   1. Any utility bill like an electricity bill or corporation tax receipt not later than 30 days.
   2. Rental Agreement or No Objection Certificate (NOC) from the owner.
3. Memorandum of Association (MOA) and Articles of Association (AOA)
   1. MOA defines the company's objectives and scope of activities. 
   2. AOA outlines the company's internal regulations and governance structures.
4. Declaration and Consent of the proposed Directors
   
   1. Form INC-9 and DIR-2 serve as the official declaration and consent to assume the director role, respectively.

Process of Private Limited Company registration in India

The MCA has introduced Simplified Proforma for Incorporating Company Electronically Plus (SPICe+), an integrated Web form offering multiple Government services. This has two parts: Part A and Part B.

1. Obtain a Digital Signature Certificate (DSC) of Directors
   1. A DSC is a digital method of verifying or attesting a document.
   2. The DSC is often issued with one-year or two-year validity. DSC is mandatory for all witnesses in the Memorandum of Association (MOA) and Articles of Association (AOA).
   3. You can obtain a class 2 or 3 DSC through any listed Government Certifying Agencies (CAs).
2. Name Approval process using SPICe+ Part A
   1. Part A of the SPICe+ form is used for 'Name Reservation' with two proposed names and one resubmission if the proposed name is not approved.
   2. Resubmission of another SPICe+ form is required if the name is rejected due to a name resemblance with a registered company, an LLP, or a trademark or due to non-compliance with the specified fee.
   3. Name approval (Part A) and Incorporation (Part B) through SPICe+ are allowed to be submitted in one go; however, in those cases, only reservation of only one name is allowed.
3. Apply for Company Registration using SPICe+ Part B

Once the name is approved in Part A, Part B of the SPICe+ form must be submitted to finish the registration process. Part B helps complete the following steps:

1. Application for allotment of DIN (Director Identification Number)
2. Incorporation of a new company
3. Submission of e-MoA (INC-33) and e-AoA (INC-34)
4. Application for PAN and TAN
5. Application for EPFO registration
6. Application for ESIC registration
7. Application for Professional tax registration (If applicable)

The information entered in SPICe+ Parts A and B is immediately transferred to the associated forms 

4. AGILE-PRO, eAoA, eMoA, URC1, and INC-9 (as applicable).

1. Open a bank account after registering with a company in India.
   Once you receive approval for company registration and CIN for your Company, the next step is to open a Current account for your company for business transactions. A current account offers the flexibility to handle various financial aspects, such as receiving client payments, making supplier payments and managing payroll.
   
2. File for the Commencement of a Business Certificate
   The commencement of a Business Certificate is the declaration that the Director of the company needs to file with the Registrar of Companies. It is filed through Form INC-20A within 180 days of your Company registration.
   

The list of registrations is as follows.

A concise checklist to help you navigate the Private Limited Registration Process:

• Get DSC for all designated Directors.
• Draft the e-Memorandum of Association & e-Articles of Association.
• Approval of Company Name, a unique and compliant name.
• Apply through SPICe+.
• Submit documents & pay fees.
• Get a Certificate of Incorporation.
• Obtain PAN & TAN.
• A company bank account and proof of the company's registered office are required.
• Stay up to date with Compliances.

Time taken in Private Limited Company Registration in India

It usually takes approximately 12 to 15 days to submit the SPICe+ form to the grant of the Certificate of Incorporation, which is subject to approval by the MCA. Below are a few reasons highlighting major registration challenges that can delay company registration.

1. Incomplete Documentation or Errors: Providing incorrect, mismatched, or incomplete documentation will lead to delays; therefore, filing forms with the topmost accuracy is key and uploading the required documents, signing, and attaching them as per the regulatory requirements.
2. Name Approval Issues: If the chosen company name is not compliant with naming guidelines, it can lead to delays. You can quickly search for the Company Name on our website to avoid such complications later.
3. MCA Server Glitches: The MCA website can sometimes experience technical glitches or a slow server, which might result in difficulties submitting your application or cause data loss.
4. Response Time: There is often a time limit for when you must complete the company registration process after the name approval. If you don't submit your application within this time frame, you might need to reapply for name approval. Delays in payment processing can also hold up the registration process.
5. Jurisdiction Variability: Different jurisdictions have varying processing times and requirement

Advantages of Private Limited Company Registration in India

1. Limited Liability: Shareholders do not have any personal liability for the company's liability, which means their assets cannot be attached to the company's liability.
2. Separate Legal Entity: A private limited company becomes a separate legal entity after being incorporated. 
3. Perpetual Succession: A company is a separate legal entity with perpetual succession, which means it will be unaffected by the death or cessation of any member.
4. Funding & Foreign Investment: Attracting funds is relatively easy for Private limited companies by issuing fresh shares or diluting existing shares to the investor. Private limited companies can also explore for investment from abroad and receive direct foreign investment.
5. Tax Benefits: Private limited companies might be eligible for certain tax benefits or incentives provided by the government. These incentives could sometimes include deductions, exemptions, or lower tax rates.
6. ESOP (Employee Stock Option Plans): A private Company can issue Employee Stock Option Plans to its employees subject to the limitation of the number of shareholders. Section 61 of the Companies Act enables a Private Company to issue Employee Stock Option Plans to its employees.

Disadvantages of Private Limited Company registration in India

• Compliance Burden: Face regulatory demands, including financial reporting, filings, and audits.
• Complex Setup: The process and management costs are higher than those of more superficial structures.
• Share Limits: Restricted share transfers; max 200 shareholders in India.
• Public Disclosure: Financial info is publicly viewable, impacting privacy.
• Exit Complexity: Selling or leaving is more complicated than with other structures.
• Slower Decisions: The involvement of shareholders and directors may slow choices.

Compliance requirements after Private Limited Company registration in India

Compliance requirements for Directors:

At least two directors and two shareholders must register a private company in India. These directors and shareholders can be the same or different individuals, with at least one Director being an Indian Resident.  The maximum number of shareholders should not exceed 200 under the Companies Act 2013.

Compliance requirements for Private Limited Company

1. Board Meetings: The first meeting of the Board of Directors will take place within 30 days of the company's incorporation. Hosting four meetings in a year with a gap of not more than 120 days is compulsory.
2. Annual General Meeting (AGM): Every year, on or before September 30th, during business hours and in the registered office.
3. Auditor appointment: Appoint the Company's first auditor within 30 days of incorporation who will serve until the end of the first AGM.
4. Filling of ADT-1 Form: File Form ADT 1 within 15 days of the appointment of the subsequent auditor.
5. Filing of Annual Return: File Annual Returns (AOC 4 and MGT 7) within 30 and 60 days of holding the AGM, respectively.
6. Filing of Income Tax Return: File Form ITR-6 for Income Tax Return annually.
7. Filing of DIR-3 KYC: File Form DIR-3 KYC to disclose details of the Directors.

Minimum Capital Requirement

There is no minimum capital requirement for Private Limited Company registration in India. However, a Private Limited Company needs to have a minimum of 2 shareholders, each shareholder must have at least one share. So, the company's minimum authorized and paid-up capital is at least Rs 2. This is subject to the requirements of the current account. However, at Protax Advisors we advise client to set the authorized capital at ₹1,00,000 (One Lakh), which serves as an initial estimate of the maximum investment that the company could potentially receive from its shareholders.

Tax Rates for Private Limited Company in India

The basic tax rate for all domestic companies excluding Surcharge and Cess- 25%
A surcharge is an additional charge levied for income above the specified limits; it is charged on the amount of income tax calculated as per applicable rates:

1. Taxable income above ₹1 Crore- Up to ₹10 Crore: 7%
2. Taxable income above ₹10 Crore: 12%

Health and Education cess at 4% shall also be levied on the amount of income tax plus surcharge (if any).

Frequently Asked Questions- FAQs

Q: What is the annual compliance requirement post Private Limited Company registration?

• Appointment of auditor in form ADT-1
• Preparation Annual Report
• Statutory audit of accounts by Chartered Accountant
• Filing of annual return with ROC
• Filing of financial statements with Income Tax and MCA
• Holding Annual General Meeting (AGM)
• Filing of income tax return

Q: What are benefits of Private Limited company registration in India?

Limited Liability: Shareholders' Liability is restricted to the extent of their capital contribution, safeguarding personal assets from the company's financial obligations and liabilities.

Distinct Legal Identity: A Private Limited Company possesses an independent legal identity distinct from its promoters. It has the capacity to own assets, engage in contractual agreements, and initiate or defend legal actions under its own name.

Continuous Existence: The Company's existence persists irrespective of shifts in shareholders or directors. Its existence is not contingent upon the lifespan of its associates.

Ease of Funding: Raising capital by issuing shares to investors, venture capitalists, or angel investors is easier. This structure attracts external investment. This removes the capital worries when an entrepreneur start company.

Tax Benefits: Private Limited Companies may qualify for various tax benefits and exemptions, making them tax-efficient entities.

Credibility and Trust: Having "Pvt. Ltd." in your company name often instills more confidence and trust in customers, suppliers, and partners.

Q: What is drawback of Private Limited company registration in India?

Compliance Burden: Face regulatory demands for any non-compliance, including financial reporting, filings, and audits.

Complex Setup: Process and cost for managing a Pvt Ltd Company is comparatively higher.

Share Limits: Restricted shareholders maximum of 200.

Public Disclosure: Financial info is publicly accessible with small fee.

Exit Complexity: Selling or leaving is more complicated than with other structures.

Slower Decisions: The involvement of shareholders and directors may slow decision making.

Q: How many people is required to register a private Limited Company in India?

Minimum two people is required to register a Pvt Ltd. Company who will act as a director and shareholder in new incorporated company.

Q: What is process of closing a Private Limited Company in India?

You can wind up a private limited company voluntarily by following the legal process, which involves obtaining shareholders' approval, settling debts, and filing necessary documents with the RoC, these rules are prescribed under Companies Act 2013. Being a complex process, we recommend hiring a professional in closure process. At Protax Advisors we can help you to close your business at minimum cost.

Q: How to check if my Private Limited company has been registered in India?

You can verify the registration status of your company through the MCA website. To do this, navigate to the "MCA Services" section and choose "View Company/LLP Master Data" from the provided options. Input your Company's Corporate Identification Number (CIN) and click "Submit." Your company status will be displayed.

Q: Can a person doing Job can become Director in a Company?

Any person can become Director in a Company; however, person needs to check with their employer and terms and conditions mentioned in employment contract.

Q: Can we convert Private Limited Company into LLP?

Conversion of Pvt. Ltd. Company into LLP is possible as per the Companies Act 2013, and it is a complex process; we at Protax Advisors recommend taking the help of a professionals for hassle-free experience. 

Q: What is difference between shareholder and Director in a Private Limited Company in India?

Shareholders are those people who have invested in the company through initial capital, also called promoters; however, Directors are entrusted with the day-to-day affairs of the company. Director may or may not be a shareholder.

Q: What is Digital Signature Certificate used in Spice Form?

A Digital Signature Certificate is the process of signing any form digitally and issued by the Certifying authority of India. It is issued by Certifying authority to individual after verification of PAN, Aadhar card, bank statement. It works on private and public key digital infrastructure.

Q: How many days is required in a private limited company registration?

The registration process typically takes 12-15 working days, depending on the completion and submission of all required documents and approvals from the Ministry of Corporate Affairs (MCA).

Q: Can we register a Private Limited Company with one person?

No, a Minimum of two directors is required to register a Pvt. Ltd. Company in India.

Q: What happens if compliance requirement not done after private Limited Company registration?

Non-compliance may result in fines, legal actions, and disqualification of directors. The company could also be marked as inactive or struck off the register by the Registrar of Companies (ROC). Additionally, continuous non-compliance can damage the company's reputation, making it difficult to secure financing or attract investors. Directors may face personal liability, and the company may incur additional costs to restore its compliance status.

Q: What happens if the registrar rejects the proposed name?

If the name is rejected, the applicant can submit up to two more names for approval. It's important to conduct a preliminary name search to avoid rejection.

Q: How to change the address of a private limited Company?

With board approval, the registered office can be changed within the same city or state. If moving to a different state, a special resolution and approval from the Regional Director of MCA are required.

Q: Can we remove the Director in a Private Limited Company?

Yes, the Director can be removed after filing relevant forms with ROC and passing a resolution in a board meeting.