Private Limited Company Incorporation

Private Limited Company: A Detailed Guide

A Private Limited Company (Pvt Ltd) is a privately held company that exists as a separate legal person, distinct from its owners (shareholders) and the people who run it (directors). Because of this separation, the company can own assets, take on debt, and sue or be sued in its own name, and its existence is unaffected by changes in ownership, a feature known as perpetual succession. Ownership is divided into shares, and each shareholder’s liability is limited to the unpaid amount on the shares they hold. Shares cannot be offered to the general public, and membership is capped at 200, which keeps ownership closely held. Every incorporation is processed electronically through the MCA’s integrated SPICe+ form.

Advantages of a Private Limited Company

A Private Limited Company offers several benefits that make it the preferred choice for serious businesses:

• Limited Liability Protection: Shareholders’ personal assets are protected; liability is limited to the unpaid value of their shares.
• Easier Access to Funding: It can issue equity to angel investors and venture capital firms, and most sectors allow foreign investment under the automatic route, making it the structure investors prefer.
• Separate Legal Identity and Credibility: A registered company carries far more trust with banks, vendors, and large clients than an unregistered business.
• Perpetual Succession: The company continues regardless of changes in ownership or management.
• Transferable Ownership: Shares can be transferred (subject to the Articles), making it easy to add or exit shareholders.
• Startup Benefits: DPIIT-recognised startups can access tax holidays and other government incentives.

Disadvantages of a Private Limited Company

Along with its strengths, a Private Limited Company carries a few responsibilities to weigh:

• Higher Compliance Burden: Mandatory annual ROC filings, board and general meetings, and a statutory audit regardless of turnover.
• Setup and Running Costs: Incorporation and ongoing compliance costs are higher than for a proprietorship or partnership.
• Restricted Share Transfer: Shares cannot be offered to the public, and transfers are governed by the Articles of Association.
• Reduced Privacy: Financial statements and key details are filed with the ROC and form part of the public record.
• More Involved Closure: Winding up a company is a longer, more formal process than dissolving an unregistered business.

Minimum Requirements for Incorporation

Before incorporating a Private Limited Company, the following are required:

• Shareholders: A minimum of 2 and a maximum of 200.
• Directors: A minimum of 2 and a maximum of 15, with at least one director resident in India.
• Digital Signature Certificate (DSC): For all proposed directors and subscribers.
• Director Identification Number (DIN): Allotted through SPICe+ for up to three directors.
• Company Name: A unique name that complies with MCA naming rules.
• Registered Office: A valid address in India (a residential address is permitted) with proof.
• No Minimum Capital: There is no minimum paid-up capital requirement.

Eligibility Criteria

A Private Limited Company can be formed by almost anyone who meets the basic conditions:

• At least two persons to act as shareholders, and at least two as directors (the same people can be both).
• At least one director must be a resident of India.
• Indian nationals, NRIs, foreign nationals, and corporate entities can hold shares, subject to FDI rules.
• Directors must be at least 18 years of age and hold a valid PAN.

Governing Law and the SPICe+ Process

A Private Limited Company is governed by the Companies Act, 2013 and administered by the Ministry of Corporate Affairs (MCA) through the Registrar of Companies (ROC). Incorporation is carried out on the MCA portal using SPICe+, a single integrated web form. Part A reserves the company name and Part B handles incorporation. Along with Part B, the e-MOA, e-AOA, and AGILE-PRO-S forms are filed, which also apply for GSTIN, EPFO, ESIC, Profession Tax (where applicable), and a bank account. DIN, PAN, and TAN are issued through the same application. An approved name is valid for 20 days, and the Certificate of Incorporation is typically issued within about 7 to 10 working days when documents are in order.

Documents Required

For Directors and Shareholders:

• PAN card (mandatory for Indian nationals) and Aadhaar card.
• Identity proof: Voter ID, Passport, or Driving Licence.
• Address proof: bank statement or utility bill not older than two months.
• Passport-size photograph, email ID, and mobile number.
• Foreign nationals: passport (notarised or apostilled as applicable).

For the Registered Office:

• Latest electricity or utility bill (not older than two months).
• No Objection Certificate (NOC) from the owner of the premises.
• Rent or lease agreement, if the premises are rented.

Private Limited Company Registration Process

The incorporation follows a clear, fully online sequence:

1. Obtain Digital Signature Certificates (DSC) for all proposed directors and subscribers.
2. Reserve the company name through SPICe+ Part A (up to two name options).
3. Draft the e-MOA and e-AOA setting out the company’s objects and internal rules.
4. File SPICe+ Part B with capital, directors, registered office, and NIC code, together with AGILE-PRO-S and INC-9. DIN is applied for within the same form.
5. Pay the government fees and stamp duty and submit the application.
6. ROC verification and approval, after which the Certificate of Incorporation is issued with CIN, PAN, and TAN.
7. Open the company bank account and file INC-20A within 180 days.

Register your Private Limited Company with Samkhya

Registering your company with Samkhya Corporate Services is simple. Just follow these easy steps:

• Tell us about your business: Share your proposed name and business activity.
• Choose your structure: Confirm shareholders, directors, and capital with our team’s guidance.
• Fill the form: Complete our online form and upload your documents.

From there, our team handles name reservation, drafting, and the entire SPICe+ filing.

Post-Incorporation Compliances

Once incorporated, a Private Limited Company must meet ongoing obligations:

• Commencement of Business: File INC-20A within 180 days of incorporation.
• First Auditor: Appoint within 30 days and file ADT-1.
• Board Meetings: Hold the first within 30 days and the required number each year (relaxations for small companies).
• Share Certificates: Issue within 60 days of incorporation.
• Annual Filings: File AOC-4 (financials) and MGT-7/7A (annual return), and hold the AGM.
• Director KYC: Every director files DIR-3 KYC each year.
• Tax Filings: Income tax return, plus GST and TDS returns as applicable.
• Dematerialisation of Securities: Applicable private companies must hold securities in demat form per MCA rules.

Tax Implications

A Private Limited Company is taxed as a domestic company. Companies that do not claim specified incentives can opt for 22% under section 115BAA (effective rate about 25.17% with surcharge and cess). New domestic manufacturing companies set up within the prescribed timelines may opt for 15% under section 115BAB, subject to conditions. Otherwise, tax is 25% where turnover is within the prescribed threshold, or 30%, plus surcharge and cess. Dividend Distribution Tax has been abolished, so dividends are taxed in shareholders’ hands. DPIIT-recognised eligible startups may claim a tax holiday under section 80-IAC. Exact rates should be confirmed for the relevant financial year.

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