Public to Private

Public to Private

An Overvew of Private Limited Company in India.

Private Limited Company: An Overview

Any business venture is normally started by an entrepreneur - called 'Proprietor'. As the business grows, an individual is unable to find enough financial and/or managerial resources to run and expand the business. He, therefore, invites a few of his relatives or friends to join in the business. Thus, Partnership is formed . As the business grows, it becomes necessary to bring in more partners to provide finance and/or managerial inputs. Due to legal and administrative difficulties it is impracticable to bring in more partners. Partnership is really not a legal entity. A partner is agent of the firm and he can legally enter into contracts which can bind the firm. Partners have unlimited liability in respect of debt. Thus, Partner will be liable even in case of contracts entered into by any other partner, on behalf of firm. Hence, partnership has inherent limitations for growth beyond certain limits.

In order to have large business, it is essential to obtain capital from large number of people. It is not possible to allow all of them to take active part in the business. All of them also cannot accept unlimited liability in respect of debts incurred by others in the business. Thus, it is necessary to develop an organization where capital for business can be supplied by many, but management can be only in few hands. It is also necessary to have an organization, where a person providing capital is not saddled with unlimited liability.

Private Limited Company: Incorporation Process


Basic Requirements

  • Minimum 2 Shareholders

  • Minimum 2 Directors

  • At least 1 of the Directors shall be an Indian Resident

  • The directors and shareholders can be same person

  • Minimum Share Capital shall be 100,000 (INR One Lac)

  • DIN (Director Identification Number) for all the Directors

  • DSC (Digital Signature Certificate) for all the Directors

Documents Requirements (for all the Directors)

  1. Passport size photograph

  2. PAN Card copy

  3. Proof of Identity (Any one of the below)

    1. Passport

    2. Aadhar Card

    3. Driving License

    4. Voter ID

  4. Proof of Residence (Any one of the below)

    1. Bank Statement

    2. Electricity Bill

    3. Telephone Bill

    4. Mobile Bill

  5. Proof of Registered Office Address

  6. Conveyance/Sale deed or Lease deed or Rent Agreement along with the rent receipts & any one of the below

    1. Electricity Bill

    2. Gas Bill

    3. Telephone Bill

    4. Mobile Bill

Important Points to be considered

  1. Ensure that the scan documents are clear & visible

  2. Identity Proof shall be in addition to PAN Card

  3. The address proof should be in the name of the applicant and shall have Pin code/Zip code in it.

  4. Please ensure that the address proof is not older than 40 days (In case of Telephone bill, Bank statement, light bill & Mobile bill)

  5. The Identity & Residence Proof must be attested by the Notary Public.

  6. Before attestation and notarization of the documents, please email us the scanned copy of the above mentioned proofs for checking and verification

  7. As per new Incorporation Rules, (in all States in India) the promoter/s has to provide notarized affidavits for DIN application & other declarations. In this regard, the Director/s needs to purchase the stamp papers in their own name and personally visit & arrange for the notarization.

Procedure/Steps Involved In Registration

Step No.

Steps

Timeframe (Working days)

Processing

1

Digital Signature Certificate(Getting DSC for all of the Directors for digital authentication of the Incorporation documents)

2

Documents required Self attested:

  • Address proof

  • Identity proof

2

Obtaining DIN( Director Identification Number)Approved DIN is a pre-requisite for incorporation process

2

Apply for DIN and get a provisional DIN

  • Certification/Attestation of Director’s personal details

  • Sending the same to the DIN Cell and getting it approve

3

Preparation of Main Object & Name Application Search

3

  • The Promoters have to provide at least 6(Six) names in the order of priority.

  • To make an online search of availability of names as desired by the Promoters.

4

Application for Name Availability

5

Filing of INC 1 with the concerned ROC.

5

Incorporation Process

6

  • After ROC's approval for name of the Company, filing all the Incorporation documents with the ROC.

  • Online uploading of e-Forms.

  • Payment of Registration fees.

  • Receiving Incorporation Certificate.

6

Application for Commencement of Business CertificateProviding Proof of Subscription Money/Capital paid by Subscriber/Shareholder to Company Online uploading of e-Form Receiving Commencement Certificate form ROC

Upon bringing Capital into Company(Anytime within 6 months of incorporation)

Private Limited Company: FAQ


What are the advantage of a Body Corporate?

A body corporate has certain distinctive advantages:

  • Perpetual Succession: It has identity independent of its members. It can hold property or do business on its own name. Individual members come and go, but 'corporate body' continues.

  • Limited Liability: This removes one of the major drawbacks of partnership. A member is not saddled with liability in respect of debts or liabilities that might have been incurred by others in the business.

  • Diversions of Ownership and Control: Body corporate have authority to appoint small body which will look after day to day operations of the body corporate, unlike partnership firms where individual members interfere in day to day affairs. The members are entitled to appoint an auditor who is authorized to check accounts on their behalf and report irregularities.

  • Routine affairs with small body: the day to day affairs are looked after a body consisting of hew persons - say 2 to 15. Such body may be called as 'Board of Directors'.

  • Rules of Business: A body corporate must have rules for conduct of business. Such rules may be called as Constitution, Regulation or Memorandum and Articles of Association.

Advantage of 'Company form' over other forms of 'Body Corporate'?

Company form of forming a 'corporate body' is the most Popular, form for carrying out any business activity, as it removes all defects of 'partnership form' or 'cooperative society' or any other method of forming a 'corporate body' for conducting business. The 'company form' of organization has certain advantages over other forms of 'corporate bodies'.

Disadvantages of the company form of organization?

Though company form has many advantages, there are some disadvantages too:

  • High cost of formation - Accounts of the company have to be audited yearly. Meeting of shareholders have to be arranged yearly and meeting of Board of Directors have to be organized at least four times in a year. Elaborate records of members, directors, charges, minutes etc. have to be maintained. Annual return has to be filed. In case of partnership, there are very few formalities required.

  • High cost of running the organization - This removes one of the major drawbacks of partnership. A member is not saddled with liability in respect of debts or liabilities that might have been incurred by others in the business.

  • Difficult to close the company - Winding up of the company is a very long, tedious, costly and tune consuming process. On the other hand, closing a partnership business is comparatively very easy and fast. Despite these few disadvantages, the advantages far outweigh the disadvantages. Almost all businesses of any considerable size are always formed as a 'company'. Even when partnership business becomes large, it is usually converted into a limited company.

What are the situations when member has unlimited liability?

The shareholders can have unlimited liability only in the following cases-

  • Fraudulent conduct of business - If any person conducts business of the company fraudulently, he will be personally liable [section 339 of the 2013 Act -Section 542 of the 1956 Act]. He can also be personally liable in class action under section 245 of the 2013 Act.

  • Personal guarantee for loans - Often promoter - directors are asked to give personal guarantees for the loans given to the company. In such cases, the directors/promoters will be personally responsible to the extent of guarantees given.

  • Personal liability of directors of taxes - The directors do not have liability in case of liabilities of company. However, in few cases e.g. taxation liabilities in case of private company, directors have personal liability.

Can a company enter into partnership with others?

A company, being juristic person can do what a 'person' can do. Thus, legally, a company can enter into partnership with another.

What are the procedures after Incorporation of Company?

A company having share capital (public or private) is required to file a declaration signed by a director or subscriber that every subscriber has paid the value of shares agreed to be taken by him and the company has filed with ROC a verification of its registered office in prescribed manner - section 11(1) of the 2013 Act.

    Commence business only after filing declaration - A company having share capital (public or private) can commence business or exercise any borrowing powers only after filing declarations regarding minimum paid up capital and verification of registered office, as required under section 11(1) of the 2013 Act. The declaration shall be filed by director in form INC.21 with fees and verified by practicing CA, CS or CMA.

    Verification of registered office - The verification of registered office shall be filed in Form No. INC.22 with prescribed fees.

    First Board meeting - First Board meeting should be held within 30days and minimum required resolutions should be passed (see under Board meetings).

What are the various mode of raising Capital in a Company?

Share capital are 'own funds' of the company. Share capital can be raised by company by following means-

  1. Private Placement - From friends and relatives of promoters & directors if authorized by special resolution.

  2. Public Issue - Invite public to contribute to share capital. Public Offer can be (a) initial public offer (IPO) or (b) further public offer of securities of company or (c) Offer for sale of securities to the public by an existing shareholder.

  3. Rights Issue - Asking existing members to take new shares in proportion to their existing share holding

  4. Sweat Equity to employees/directors/promoters.

  5. ESOP/ESOS to employees, on passing of special resolution.

  6. Issue of shares to other for consideration of cash or other than cash, if price is determined by registered valuer and issue authorized by special resolution.

  7. Bonus Shares.

  8. Conversion of debentures into shares, partly or fully.

  9. Conversion of loan or debentures into shares, if there is such a term in loan agreement or issue of debentures and it is approved in general meeting by a special resolution.

  10. Compulsory conversion of debentures or loans into equity by Central Government on terms decided by Government.

  11. Global Depository Receipt (GDR) in any foreign country.