The incorporation of a private limited company is the first step a business owner should take while setting up the business. A private limited company offers a number of benefits as against other corporate entities. A private limited company gives great visibility to a business and also offers limited liability to its members.
Overview of Pvt Ltd
A private limited company(Pvt Ltd) is a corporate entity that enables a group of people to carry out a business. The group of people running the business are called the shareholders. Although there are different types of corporate entities to incorporate a business, a PLC is chosen by quite a number of start-ups as it gives scope for higher visibility and popularity amongst potential clients.
Further, Pvt Ltd is a separate legal entity and is different from its members. Therefore, the company is eligible to enter into contracts, can sue, and be sued by third parties, by itself. Moreover, the company has a perpetual existence.
Another reason why Pvt Ltd has an edge over the other corporate counterparts among the VCs and start-ups is that it presents funding options like private equity, ESOP, etc. Further, fundraising and borrowing from financial institutions are relatively easier for private limited companies.
The Pvt Ltd was evolved under the Companies Act, 2013 under the Ministry of Corporate Affairs (MCA). The Act defines a private company as
- One that has a minimum paid-up share capital.
- One that renders the shares nontransferable.
- A company should have a minimum of 2 and a maximum of 200 members, the exception being a one-person company.
- A company where the public cannot subscribe to the shares of the company.
- If a company does not follow the rules as pointed out by the Act, it is not or ceases to be a Pvt Ltd.
Pvt Ltd- Different Types of Company Registrations in India:
Although Pvt Ltd is best-liked by many budding businesses, there are also other forms of company registrations that are being done. In short, there are no right or wrong choices, when it comes to choosing a corporate entity for the business. Likewise, it merely depends upon key factors such as the type of the business, number of shareholders, their tax obligations, etc.
Further, the primary types of company registrations are as follows:
- Public Limited Company Registration
- Private Limited Company Registration/Pvt Ltd
- Partnership Firm Registration
- Limited Liability Partnership (LLP) Registration
- One Person Company (OPC) Registration
- Proprietorship Firm Registration
Although there are various types of companies, the most prevalent ones are public and private limited companies. There does exist a wide variety of differences between public and private limited companies. Further, a few of them are illustrated below.
|S.No||Public Limited Company||Private Limited Company(Pvt Ltd)|
|1||The public has access to the shares of the company||The company isn’t listed on the stock exchange and the public does not have access to the shares.|
|2||There should be a minimum of 7 members||There should be a minimum of 2 members|
|3||There is no limit on the maximum number of members a company can have||There can be a maximum of 200 members except in the case of One Person Company (OPC).|
|4||There should be a minimum of 3 directors||There should be a minimum of 2 directors.|
|5||The shares are not easily transferable||The shares are freely transferable|
|6||A public company can issue a prospectus||A private company is forbidden from issuing a prospectus.|
|7||Holding a statutory meeting is mandatory.||Statutory meetings are not compulsory.|
Documents Required for the Formation of a Pvt Ltd Company
- Proper Identity Proof such as PAN card, Aadhar card, a valid driving license, or an Indian passport of the standing directors and shareholders of the company
- Moreover, valid proof of the address of the company’s directors and shareholders, such as the most recent telephone bills, electricity bills, and statements of accounts from the bank
- Rental agreement and an NOC from the owner, if the company’s registered office is in a rented property
- Sale deed, if the company is situated on its own property
- Director Identification Number (DIN) and Digital Signature Certificate (DSC) are required for the directors of the company.https://www.youtube.com/shorts/S7OLlaDvJyE
The process to Register a Pvt Ltd Company in India:
Despite the fact that the company registration process is not very tedious, it requires a series of steps to be followed and also mandates the submission of the requisite documents as elucidated earlier. Therefore, the right option would be to delegate the registration to concerns that carry out company registration services.
Also being a perpetual corporate body, a company has a number of compliances that have to be met. The following are the various steps that have to be adhered to, to get a PLC registered.
The first step would be to acquire the DSC for the directors of the company.
The DIN must be obtained from the MCA. The DIN is a unique 8 digit number through which the details of the directors are maintained in the database.
The availability for the name of the company must be checked, by making an application for the same.
The forms SPICe+ and INC-32 are to be duly filled and submitted while making an online application.
The Memorandum of Association (MoA) and the Articles of Association (AoA) are to be presented.
An application must be made for PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) mandatorily to get the company registered.
The registrar verifies the documents and if it is satisfactory, the certificate of incorporation (COI) is awarded along with the PAN and TAN. Further, once the company registration certificate is received, an account has to be begun in an authorized bank in the name of the company to perform the financial transactions of the Pvt Ltd company.
Requirements for a PLC
To set up a private limited company in India, you need to fulfill the following requirements:
- Minimum two directors: A private limited company must have at least two directors, and one of them must be a resident of India.
- Minimum two shareholders: There should be a minimum of two shareholders to form a private limited company, and the maximum number of shareholders is limited to 200.
- Registered office: The company must have a registered office address in India, which should be communicated to the Registrar of Companies (RoC).
- Minimum authorized capital: There is no minimum capital requirement for a private limited company in India. The company can start with any amount of capital as per its business requirements.
- DIN and DSC: The directors of the company must obtain a Director Identification Number (DIN), and the authorized representatives must have a Digital Signature Certificate (DSC).
- Name availability: The proposed company name must be unique and not infringe on any existing trademarks or copyrights. It should also comply with the naming guidelines issued by the Ministry of Corporate Affairs (MCA).
- Memorandum and Articles of Association: The company must prepare its Memorandum of Association (MOA) and Articles of Association (AOA) to define its objectives, rules, and regulations.
- Compliance: Private limited companies need to comply with various legal and regulatory requirements such as annual filings, conducting board meetings, maintaining proper accounting records, etc.
It’s important to consult with a professional chartered accountant, company secretary, or legal advisorfrom Zolvit to ensure compliance with all the necessary requirements and procedures for setting up a PLC in India
Advantages and Disadvantages of a PLC/ Pvt Ltd
A private limited company offers several advantages. Firstly, it provides limited liability protection to its shareholders, meaning their personal assets are not at risk in the event of company debts or liabilities. Secondly, it allows for a clear separation between the personal and business assets of the shareholders. Thirdly, it provides opportunities for easier access to funding and capital through the issuance of shares. Additionally, a private limited company enjoys perpetual existence, independent of its shareholders, ensuring stability and continuity.
However, a PLC also has some disadvantages. For instance, the process of setting up and maintaining a private limited company can be more complex and costly compared to other business structures. Furthermore, there are certain legal and regulatory compliance requirements that the company must adhere to, which can involve additional administrative burdens.
How to Invest in a PLC/Pvt Ltd?
Once a potential PLC is identified, due diligence should be conducted to assess the company’s financial health, market position, and legal compliance before investing. This involves reviewing financial statements, legal agreements, and conducting background checks. If the due diligence is satisfactory, negotiations can take place regarding the investment terms, such as the amount to be invested, ownership stake, and expected returns. Finally, legal documentation, such as a share subscription agreement or shareholders’ agreement, is executed, and the investment is made by transferring funds to the company in exchange for the allocated shares.
It is important to note that investing in private limited companies carries risks, and it is advisable to seek professional advice from the experts at Zolvit before making any investment decisions.
What Does It Mean to Be a Public Limited Company (PLC)?
A public limited company, also known as a publicly traded company, is a type of business organization that offers its shares to the public and is listed on a stock exchange. It is governed by the regulations and laws applicable to public companies.
Public limited companies often have higher public visibility, increased scrutiny, and access to larger pools of capital However, they are also subject to more stringent regulations and have additional compliance costs compared to private limited companies.
When Should Businesses Become a Public Limited Company?
Businesses may consider becoming a public limited company under the following circumstances:
Need for substantial capital: If a business requires a substantial amount of capital to fund its expansion plans, acquisitions, research and development, or other strategic initiatives, it may consider going public. By issuing shares to the public, the company can raise significant funds and fuel its growth.
Access to public markets: Going public provides access to public markets and the ability to raise capital through IPOs or subsequent equity offerings. This can offer liquidity to existing shareholders and attract new investors who are looking to invest in publicly traded companies.
Enhancing brand and reputation: Being a public limited company can enhance a business’s brand image and reputation. It provides credibility in the market, increases visibility, and can help attract customers, partners, and talented employees.
Mergers and acquisitions: Public limited companies have a more favorable position for engaging in mergers, acquisitions, or strategic partnerships. Their publicly traded shares can be used as a currency for acquiring other businesses or negotiating deals.
Exit strategy for early investors: If early-stage investors or venture capitalists are looking for an exit strategy to realize their investments, taking the company public can provide them with an opportunity to sell their shares on the open market.
Becoming a public limited company involves a complex process and substantial regulatory compliance. It’s essential for you to carefully evaluate their specific circumstances, consult legal and financial advisors from Zolvit, and assess the potential benefits and drawbacks before deciding to go public.
Can a public limited company become a private limited company?
Yes, a public limited company can be converted into a private limited company by following the legal process prescribed by the applicable company law in the respective jurisdiction. In India, for example, a public limited company can be converted into a private limited company under the provisions of the Companies Act, 2013, and the rules and regulations issued by the Ministry of Corporate Affairs (MCA).
How to Find the Company Registration Number (CRN):
The CRN can be found on the official MCA website: https://www.mca.gov.in/content/mca/global/en/home.html. Various details with respect to the company such as its CRN, its directors, type of the company, etc can be deduced from the website.
- Step1 : In the MCA home page, an option called “MCA Services” is present. On Selecting that a dropdown appears.
- Step 2: Moreover, on Selecting “Master Data” from the options, another list appears. Select “View Company or LLP Master Data”.
- Step 3: On selecting the above option, the user is navigated to the next page, wherein the user is supposed to enter the name of the company, and the CIN. The entered data is checked with the database, and the relevant information about the company such as the date of incorporation, registration number, the status of the company, etc are fetched.
How Long Does it Take to Register a Pvt Ltd Company?
Now that the majority of the operations pertaining to the registration of a company take place online, the process is completed within 9-10 days, provided all the necessary documents are ready. The time frame is also inclusive of the time taken to get the DSC, the DIN, and the name approval for the company.
What Is the Cost of Registration of a Pvt Ltd Company in India?
The fee to be given to the government to register companies was waived effective from January 2019. Also, previously, the registration costs of a Pvt Ltd would vary depending upon the shared capital of the company. But now, the concept of minimum shared capital is not being considered. Further, the professional fee for the registration of companies varies depending upon the processes and complexities involved in getting the company registered. Further, the various forms of company registration cost in India would be somewhere from ₹1500/- to ₹15000/-. The cost would also depend on the state taxes. Likewise, when it comes to the registration of a private limited company(PLC), the cost would come ₹6000/- to ₹60,000. This would again depend on various factors like the number of members present in the company, number of directors, etc along with the professional fee.
Thus, registering a Pvt Ltd is the first step in establishing a successful business. Similarly, an eminent entrepreneurial journey depends on how well the key decisions are taken. Right from the business to be established, to the corporate entity to be taken for the respective business, an entrepreneur has to pitch in at various instances to take the right decision.
Moreover, that being said, getting into the intricacies of registrations and taking care of the compliances can turn burdensome to any business owner.
Further, To ease such challenges, our experts here at VakilSearch can help the business be registered at the quickest possible without any hassles for Pvt Ltd, opc etc.., as we clearly understand how important the business is for every entrepreneur. Moreover, a business owner can thus rest assured that the registration of the company will be accomplished at the snap of a finger when done by us.