Private Limited Company

A private limited company is a business entity that is held by private owners. This type of entity limits the owner’s liability to their ownership stake, and restricts shareholders from publicly trading shares. The incorporation of this entity is done by promotors of the company through Ministry of Corporate Affairs (MCA). It is the most popular legal structure form of business and allows outside funding and also employee stock options. More stringent compliance measures to be followed, hence more credibility. The company need to appoint an auditor and the audited financial statements are to be submitted to MCA annually. The company is eligible to issue debentures and convertible debentures.

In other words, A Private Company is a company which is owned by non-governmental organisations or a small number of shareholders . Usually, a private company does not offer or trade its shares to the general public on the stock exchanges, but do the trading of shares privately.

Advantages of a Private Limited Company

Members: You can start a private limited company with a minimum of only 2 members (and maximum of 200), as per the provisions of the Companies Act 2013.

Limited liability: The liability of each shareholder or member is limited. This means that if the company runs into a loss, the company shareholders are liable to sell their company shares to clear the debt or liability. The individual or personal assets of shareholders or members are not at risk.

Perpetual succession: As per company law, perpetual succession means that the company continues its existence even any owner or member dies, goes bankruptcy, exits from the business and transfers his shares to another person.

Prospectus: Prospectus is a detailed statement that must be issued by a company that goes public. However, private limited companies do not need to issue a prospectus because the public is not invited to subscribe for the shares of the company.

Number of directors: A private limited company needs a minimum of only 2 directors. At least one director on the board of directors must have stayed in India for a total period of not less than 182 days in the previous calendar year. The directors and the shareholders can be the same people.

Capital: Minimum share capital required is only Rs. 1 lakh.

Disadvantages of a Private Limited Company

Incorporation Process

Registration of a Pvt Ltd company in India is complete an online process. Recently the MCA has replaced the earlier SPICe form with a new web form called SPICe+ (SPICe Plus). Hence, Incorporating a Private Limited Company is even easier now.

The application is submitted by paying the requisite Stamp Duty as applicable in case of concerned state on the portal. Once the application is submitted, form for application of PAN and TAN of the company is generated online, which shall be duly submitted after affixing the DSC with MCA.

Step 1: Acquire DSC for Directors and Subscriber

The first and foremost step to register a private limited company is to acquire the DSC of the Directors and Subscribers to MOA. DSC stands for Digital Signature Certificate. Any e-form is filed with the Ministry after affixing the DSC of the Authorised Signatory for Company Incorporation. Also, it is required for the application of DIN of the directors. Further, the subscribers and witness/witnesses are expected to affix their digital signatures to the e-MOA and e-AOA.

Step 2: Obtain DIN for Directors

DIN is an 8-digit Directors Identification number. According to Section 153 of the Companies Act, 2013, each individual who is selected as director of the organisation will file an application in e-Form DIR 3 alongside recommended fees. But, the application for designation of DINs to the projected first Directors in regards to new organisations will be made in SPICe form.

The documents required for DIN are passport size photograph, self-attested address proof copy and PAN card copy of the applicant. DIN is unique such as PAN Card to any person and which is applied and allotted once in the lifetime.

Step 3: Name approval Application

The next step in company registration involves making an application for reservation of name for the proposed company. The application is to be made in Form INC-1, where one can apply for maximum 6 names in order of the preference. One shall keep in mind that the names applied are not identical or nearly resembling with any existing Company or LLP or Registered Trademark.

Once the name applied is approved, it is reserved for the applicant for a period of 60 days, in span of which one has to apply for the Incorporation of Company, non-compliance of which leads to withdrawal of the name granted by the Ministry.

Additionally, the projected name of the organisation can likewise be held through the RUN web service. RUN (Reserve Unique Name) is simple to utilise web administration for booking a name for a new organisation or change of name for any current organisation. The applicant needs to apply through RUN for reservation of proposed organisation name alongside payment of relevant charges, which at that point will be handled by the Central Registration Centre (CRC).

Step 4: Draft MOA & AOA of the firm

Memorandum of Association (MoA) stands for the deed of the company. It is an officially authorized document prepared during the formation and registration process of a company to define its relationship with shareholders, and it specifies the objectives for which the company has been formed. An Article of Association ( AoA ) outlines the rules and regulations of the internal management of the company. It outlines the duties, rights, and powers of the management of the company.

MOA and AOA forms can be drafted by the endorsed tables (for example Table A and Table F individually can be utilised to draft the MOA and AOA of the organisation bound by shares) including the objectives of the organisation and other standards and guidelines for the organisation’s administration. In case of a Private Limited company, the Articles shall mandatory consist the following three clauses in addition to general clauses:

Step 5: File SPICe Form – INC 32

SPICe form (INC-32) deals with the single application for reservation of name, incorporation of a new company and/or application for allotment of DIN and/or application for PAN and TAN. This e-Form is accompanied by supporting documents including details of Directors & subscribers, MoA and AoA, etc. Once the e-Form is processed and found complete, the company would be registered and CIN would be allocated. Also, DINs get issued to the proposed Directors who do not have a valid DIN. Utmost three Directors are allowed for using this integrated form for filing application of allotment of DIN while incorporating a company. Moreover, PAN and TAN would get issued to the Company.

SPICe Form is to be filed with the Registrar of Companies along with accompanying documents:

Form DIR-2 – statement from first directors
Statement by Directors- regarding credits
DIN affirmation by proposed Directors
INC-9 affirmation by first subscribers and directors
Directors’ interest
Memorandum of Association (can be recorded as eMOA in Form INC 33)
Articles of Association (can be recorded as eAOA in Form INC 34)
Statement by director if any agreement of Sector regulator is required
Registered office address proof
Proof of address and identity of all the subscribers

Due verification of the application and documents provided after the SPICe are prepared and completed, the projected organisation would be enlisted with the Companies Act, 2013 and CIN would be allotted. PAN and TAN would be provided to the company. After receipt of incorporation certificate, we can apply for GSTIN, foundation code under the EPFO and Employer Code under Employees State Insurance Corporation. Once, the Certificate of Incorporation is granted, the company may commence the Business Activity as the Incorporation procedure is completed.

Post-Incorporation Procedures

Step 1: Authentication of registered office in INC 22 form

According to Section 12, Companies Act, 2013, organizations must furnish their registered office address with the Registrar of Companies within 30 days of incorporation. As per Rule 25, the Companies Incorporation Rules, 2014, the confirmation of the enlisted office is required to be documented in form No. INC.22 alongside specified expenses.

The Form INC 22 shall be filed together with the accompanying documents:

the enrolled document of the title of the locations of the registered office in the name of the firm; or

the signed and attested copy by a notary of rent or lease agreement in the name of the firm alongside a duplicate of rent paid receipt (the most recent one month);

the approval from the proprietor or approved inhabitant of the properties alongside the verification of possession or tenancy approval, to utilise the property by the organisation as it’s registered workplace; and

the most recent two months proof of any utility service like gas, telephone, electricity, etc. as address proof of the location in the document or the name of the owner.

Step 2: Requirement of Company Name Board & official publications

According to Section 12 (3), the Companies Act, 2019, each organization shall hold company’s name, and the address of the company’s registered workplace, also, keep the equivalent ready at the entrance of the office or spot wherein its business operations are running, in an obvious situation, in clear letters, in both English and the local language of the relevant place.

The organisation ought to get its company name, registered office address and the Corporate Identity Number alongside phone number, email, fax number (assuming any), and website addresses (assuming any), all printed in business letters, letter papers, billheads and in every notification and other official publications.

Step 3: Declaration for commencement of business (e-form INC 20A)

As per Section 10A, Companies Act, 2013, an organisation incorporated after the initiation of the Companies (Amendment) Ordinance, 2019 and having a capital share ought not to start any business or exercise any powers except if-

A Director has to attach the Bank Account statement of Company having all credit entries for receipt of subscription money received from all subscribers to MOA as an attachment to e-form INC 20A within 180 days of incorporating the company with the Registrar that each subscriber to the memorandum has share value consented to be taken by him or her on the date of creation of such an assertion; and confirmed in INC 20A form alongside the charges as might be agreed.

It is mandatory to obtain the “Certificate of Commencement of Business” by filing Form 20A

Annual Compliance :

We have elaborated below such compliances which a private limited company has to follow:

Mandatory Compliances

We have developed some of the mandatory agreements that a private Limited company must ensure:

First Board Meeting

First Meeting of Board, along with Directors, is expected to be held within 30 days of Incorporation of Company. Declaration of Board Meeting must be sent to each director at least seven days ere the meeting.

Subsequent Board Meetings

Minimum of 4 Board Meetings to be checked every year with not more than 120 days gap within two meetings.

Filing Of Acknowledgement Of Interest By Directors

Every director at:

The first meeting in which he engages as director; or
The first meeting of Board in each FY; or
Whenever there is a variety in disclosures shall reveal in Form MBP 1 (along with a list of relatives and attention of relatives in the Company as per RPT definition), his interest or interest in any company, body corporate, organizers/firms or other organization of individuals (including shareholding interest). Form MBP‐1 shall be kept in the documents of the Company.

First Auditor

The BOD shall designate the first Auditor of the Company within 30 days of Incorporation who shall continue the office till the completion of 1st AGM. In the matter of First Auditor, filing of ADT-1 is not necessary.

Subsequent Auditor

The BOD shall delegate the Auditor in first AGM of Company who shall hold the position till the conclusion of 6th AGM and shall notify the same to ROC by filing ADT-1. The capacity to submit Form ADT 1 is that of the Company and not of the Auditor within 15 days from the time of appointment.

Annual General Meeting

Every Company is needed to hold an Annual General Meeting on or before 30th September every year during working hours (9 am to 6 pm). On a day that is not a general public holiday and either at the certified office of the Company within the city, town/ village where the certified office is positioned. A 21 bright days’ notice is required to be given for the same.

Filing Of Annual Return (eForm MGT-7)

Each and every Private Limited Company is expected to file its Annual Return within 60 days of operating of Annual General Meeting. Annual Return will be for the time’ 1st April to 31st March’. A company having turnover of INR 50 Crore or more shall be certified by a Practicing CS in Form MGT-8

Filing Of Financial Statements In (eForm AOC-4)

Each and every private Limited Company is expected to file its ‘Balance Sheet’ along with a statement of ‘Profit and Loss Account’ and ‘Director Report’ in this Form in 30 days of holding of ‘Annual General Meeting’. The same shall be digitally signed by one director and certified by CA/CS/Cost Accountant in Practice.

Statutory Audit Of Accounts

Each and every Company should prepare its Accounts and get the exact audited by a Professionals/Chartered Accountant at the end of the Financial Year mandatorily. The Auditor should provide an Audit Report and the Audited Financial Statements to file it with the Registrar.

Director e-KYC

All director holding DIN must complete their e-KYC on or before 30^th April of next financial year by submitting the DIR-3 form along with the requisite fees.

Issuing of Share Certificate

The Company is required to issue Share Certificates to the subscribers of memorandum within 60 days of Incorporation of Company.