What is a Private Limited Company?
A Private Limited Company is a business entity held by small group of people. It is registered for pre-defined objects and owned by a group of members called shareholders. Startups and businesses with higher growth aspiration popularly choose Private Company as suitable business structure.
The business entity gets recognized as a Company through its registration under Companies Act of 2013 in India. The governing body is Ministry of Corporate Affairs, widely known as MCA. The definition of Private Company under the Act is provided here to understand its basics. Section 2 (68) of the Act defines a Private Company as under:
A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,
i) restricts the right to transfer its shares;
ii) except in case of One Person Company, limits the number of its members to two hundred;
iii) prohibits any invitation to the public to subscribe for any securities of the company’’
How to Register a Company in India?
Private Limited Company is the most popular type of business entity in India. All companies registered in India are governed by the MCA (Ministry of Corporate Affairs) under the Companies Act, 2013. The company registration process can be completed in less than 30 days with assistance from experienced incorporation experts.
Why Register a Company?
Entrepreneurs register a company in India to create a business that is well regarded by customers, suppliers, bankers and the Government. By setting up a company, an entrepreneur has the ability to create a small or large business that can easily raise capital and scale seamlessly to any size.
How Does a Company Provide Limited Liability?
A private limited company provides limited liability protection to its shareholders. In case of any unforeseen losses, statutory or legal liabilities, the shareholders of the company will not be held responsible. Only the Directors of a private limited company are held responsible in most instances for various statutory liabilities.
How can a Company raise Funding?
A company can raise equity capital from persons or entities interested in becoming a shareholder. Entrepreneurs can raise money from angel investors, venture capital firms, private equity firms and hedge funds. A company can also raise debt financing from banks, financial institutions and NBFCs easily.
How to Open Private Limited Company Bank Account?
A private limited company is recognized as a separate entity with a dedicated PAN. Using the PAN and incorporation certificate of the company, an entrepreneur can within days open a current account in any bank.
Reasons to Register a Company in India
Entrepreneurs choose to register a company due to various reasons. Two of the main reasons is that a company is a distinct legal entity having perpetual succession. Hence, a company is not affected by the death, insanity, or insolvency of an individual member. The following are some of the top reasons to register a private limited company in India.
a. Separate Legal Entity
As per Law, a company is an artificial judicial person established under the Companies Act. A company is a separate legal entity from its Directors and Shareholders. Hence, a company enjoys a wider legal capacity, to own property and incur debts – while the individual company members owe no liability towards the company’s creditors for debts.
b. Perpetual Succession
Perpetual succession means continuing or enduring forever. A company is considered to be legally active until it is wound up by its members through a legal process. Hence, perpetual succession denotes continuous existence of a corporation or company till it is dissolved legally. Thus, a company is unaffected by death or departure of any member.
c. Limited Liability
Limited liability is a legal responsibility towards a limited amount of debts. The liability of the members with reference to company’s debts are limited i.e.; limited to the face value of the share purchased by them. This limited liability protection is often not afforded to Directors of a company – who are held responsible for operation of a company.
d. Transferability of Shares
The ownership of a private limited company is determined by the number of shares held by its shareholders. Shares of a company can be transferred to any other person or legal entity in India or abroad, subject to the articles of association of a company and the shareholders agreement. The easy transferability of shares is one of the top reasons, Entrepreneurs opt to register a company.
e. Owning Assets
A company can acquire, own, transfer any type of tangible or intangible asset in India. A shareholder is not eligible to claim the company’s property, as they are not owners of the company. A shareholder merely has an interest in the company arising under the articles of association of the company, measuring a sum for liability.
f. Equity Raising
A company is the only type of legal entity which can help the promoters raise equity funding from Angel Investors, Private Equity Firms and the Stock Exchange. A private limited company would suffice for raising equity funds from Angel Investors and Private Equity Investors. In case of listing or allotment of shares to more than 200 shareholders, a Limited Company would be required.
Documents Required for Company Registration
A. Directors: Indian Nationals
The following documents are mandatory for Indian Nationals for incorporation of company in India:
1. PAN Card: PAN Card copy of the proposed Directors of the Company will be required for Company Registration. PAN or Permanent Account Number is a unique identification number issued by the Department of Income Tax in India. It is mandatory for Directors who are Indian Nationals to submit PAN during the incorporation process.
2. Address Proof: In addition to the PAN Card copy, the proposed Director must submit an address proof. The address proof submitted must have the name of the Director as mentioned in the PAN Card and the most current address of the Director. Further, the document must also not be older than 2 months. The following documents are acceptable address proof for Indian Nationals.
- Passport
- Election Card or Voter Identity Card
- Ration Card
- Driving License
- Electricity Bill\Telephone Bill
- Aadhaar Card
3. Residential Proof: In addition to the address proof, a residential proof must be submitted during the incorporation of the Company to validate the current address of the Director. As applicable for address proof, the residential proof must also contain the name of the Director as mentioned in the PAN Card and must not be older than two months. The following documents are acceptable residential proof:
- Bank Statement
- Electricity Bill
- Telephone Bill
- Mobile Bill
4. Passport Size Photograph
B. Director: Foreign Nationals
The following documents are mandatory for Foreign Nationals for incorporation of company in India:
1. Passport: In case of Foreign Nationals, Passport is a mandatorily required as a proof of identity. The Passport must also be Notarized or Apostilled in the country it was issued. In case the document is in foreign language, then it must be translated by an official translator to English and notarized or apostilled. Further, if the Passport does not contain date of birth of the holder, then an additional document indicating the date of birth of the Director must be provided, duly certified or attested or notarized or apostilled.
2. Address Proof: In addition to the Notarized or Apostilled Passport copy, the proposed Director must submit an address proof which is also notarized or apostilled. The address proof submitted must have the name of the Director as mentioned in the Passport and the most current address of the Director. Further, the document must also not be older than 1 year for foreign nationals. The following documents are acceptable address proof for Foreign Nationals:
- Driving License
- Residence Card
- Bank Statement
- Government issued form of identity containing address.
In case the document is in a foreign language, then it must be translated by an official translator and notarized or apostilled.
3. Residential Proof: In addition to the address proof, a residential proof must be submitted during the incorporation of the Company to validate the current address of the Director. As applicable for address proof, the residential proof must also contain the name of the Director as mentioned in the Passport and must not be older than one year. The following documents are acceptable residential proof:
- Bank Statement
- Electricity Bill
- Telephone Bill
- Mobile Bill
In case the document is in a foreign language, then it must be translated by an official translator and notarized or apostilled.
4. Passport Size Photograph
C. Registered Office Proof
In addition to providing identity, address and residential address for the Directors, proof must be provided to validate the registered office address of the Company. The following documents must be submitted as proof of registered office during the company registration process or within 30 days of incorporation of the company.
- The registered document of the title of the premises of the registered office in the name of the company; OR
- The notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month;
In addition to the above, the following must also be provided as proof of registered office:
- The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord; AND
- Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.
Shareholder: Indian National or Foreign National
The identity and address proof as detailed above must be submitted for all the shareholders of the Company (i.e., subscribers to the Memorandum of Association (MOA) and Articles of Association (AOA).
Shareholder: Corporate Entity or Artificial Judicial Person
In case one of the shareholder or subscriber to the MOA and AOA is a Corporate Entity (Company, LLP, etc.,), then Certificate of Incorporation and Charter of the Body Corporate must be attached along with the resolution passed by the Body Corporate to subscribe to the shares of the company under incorporation. The same will also to be notarized or apostilled if the Corporate Entity is a Foreign Entity.
In addition to the above proofs and documents, several documents like INC-9, MOA, AOA, etc. would be drafted by a Professional. These legal documents made specifically for the incorporation must be signed and notarized by the promoters of the Company.
