Registration of a Private Limited Company: Costs and Procedures

 

Embarking on the journey of registering a private limited company, or simply registering a business entity, demands a comprehensive understanding that every startup founder and business visionary should possess. The avenues include Private Limited Company registration, Limited Liability Partnerships (LLP), One Person Companies (OPC), Partnership Firms, and Sole Proprietorships.

Among these, entities established as Private Limited Companies, One Person Companies, or Limited Liability Partnerships stand to gain particular advantages. The governance of such companies falls under the purview of the Companies Act of 2013, with oversight provided by the Ministry of Corporate Affairs (MCA).

What Constitutes a Private Limited Company?

A Private Limited Company is a particular corporate structure you can create to conduct business autonomously. Within this structure, shareholders typically hold the majority of the company’s shares.

This form of registration remains one of the most prevalent, primarily due to the flexibility it offers, coupled with limited liability and substantial growth potential.

Advantages of a Private Limited Company

The concept of a Private Limited Company has stood the test of time as a robust business model. In this structure, the entirety of the company's shares are in the hands of shareholders, who may either manage the company directly or delegate the responsibilities to appointed directors.

For startups, forming a Private Limited Company can unlock numerous benefits that will aid in materializing their entrepreneurial visions. However, the advantages depend on a variety of circumstances. You can avail yourself of various benefits under initiatives like "Make in India" and gain liability protection.

Here are some specific benefits of forming a Private Limited Company:

Limited Liability Protection

Establishing a Limited Liability Corporation serves as a vital step in safeguarding your personal assets. This is a hallmark feature of companies incorporated under the Companies Act of 2013.

In essence, should misfortune befall the company, the shareholders remain unaffected. They are only liable for any unpaid shares, with no repercussions for personal assets, provided no fraudulent activities occur.

Legal Entity Status

A Private Limited Company exists as a distinct legal entity, with perpetual succession. The departure of shareholders or employees does not disrupt the company's continuity, as they merely act as agents of the business.

In the event of the owner’s death or resignation, the shares are transferred to remaining members, ensuring the business continues unimpeded. The Articles of Association outline this succession plan.

This structure benefits not only its members but also preserves employment opportunities and community assets.

Tax Benefits

Private Limited Companies also enjoy tax advantages. These companies are taxed at corporate rates, which are often lower than individual income tax rates, allowing for more favorable taxation.

Simplified Access to Funding

Thanks to the clear distinction between shareholders and directors, and the limited liability feature, private limited companies find it easier to secure equity financing.

This is not the case for OPCs and LLPs. LLPs, for instance, require that all members become partners, and OPCs involve only one shareholder, which limits their attractiveness to venture capitalists and private equity investors.

Enhanced Funding Capacity

Private Limited Companies benefit from more borrowing options. Beyond traditional bank loans, these companies can issue debentures and convertible debentures, thus gaining preferential treatment compared to other business structures.

Transparency and Credibility

The Companies Act of 2013 ensures that the registration process for Private Limited Companies is transparent. Basic company information, such as capital, directors’ names, and incorporation dates, is made publicly available on the Ministry of Corporate Affairs website. This transparency fosters trust and opens up more business opportunities.

The benefits of registering as a Private Limited Company extend further, encompassing aspects like business continuity and fundraising capabilities.

Private Limited Company Registration Process

The process of registering a Private Limited Company is detailed and involves multiple compliance requirements. More information on the registration process can be found on our company registration page.

For further elaboration:

Obtaining a Digital Signature Certificate (DSC)
A DSC is essential for filing documents on the MCA portal. All potential directors and subscribers of the company’s memorandum and articles of association must acquire a DSC. These certificates are valid for up to two years and must be renewed thereafter.

Application for Director Identification Number (DIN)
DIN, an eight-digit unique identifier issued under Section 153 of the Companies Act, is necessary for all company directors. Any individual assuming a directorial role must obtain a DIN.

Memorandum of Association (MOA) & Articles of Association (AOA)
During registration, applicants must submit the MOA and AOA, the company’s foundational documents.

Company Name Registration
The proposed company name should be unique and reflective of the business’s offerings. The MCA provides the RUN (Reserve Unique Name) service for this purpose. Ensure that the name adheres to the MCA's naming guidelines. If the application is denied, the RUN form must be resubmitted along with the fees.

Submission of Additional Information
File Form 1 on the MCA portal, selecting at least four alternative company names. The relevant authorities will review and process the form, which typically takes up to 10 days.
The final step is applying for PAN and TAN.

Required Documents for Company Incorporation

Proper documentation is crucial for Private LTD Company registration, as errors can lead to delays and increased effort.

Essential documents include:

• Passport-sized photos

• PAN card copies of directors

• Scanned copies of address proof (electricity bill or bank statement)

• Aadhar or Voter ID cards

• Email addresses and mobile numbers

• Proof of registered office location (e.g., an electricity bill no older than two months). If the property is rented, additional documents like a lease deed, rent agreement, or NOC are necessary.

Costs Involved

Incorporating a Private Limited Company can be expensive. Costs vary based on the number of directors and the complexity of the registration process.

However, technological advancements and online registration options have significantly reduced the fees, making it more affordable than traditional methods.