Private Limited Company Registration: A Beginner’s Guide

Overview

While planning to set up a company in India, an individual will come across various types of companies, each having a different set of regulations, procedures, filings, and key provisions. One can choose a One Person Company (OPC), Private Limited Company, Public Company, Proprietorships, Limited Liability Partnership (LLP), or Section 8 company, among others. So why should you opt for a private limited company among all these choices? A Pvt ltd company is widely popular for its ease of formation, limited liability protection, and other benefits it offers to the owners.

These companies require minimal compliance as compared to the public and can be easily maintained. Planning to set up a private limited company in India? Keep reading to understand how to create a Pvt ltd company (private limited company) and what are the key aspects that govern such companies in India.

Key Aspects of a Private Limited Company in India

As per the Companies Act 2013, a private company is an enterprise having a minimum paid-up share capital as prescribed, however, the Companies Amendment Act 2015 removed this requirement. So, any individual or company can incorporate a private limited company with any amount of paid-up capital.

Although there is no prerequisite minimum paid-up share capital, a company still needs to have authorized capital.

But what is authorized capital? Also known as nominal capital or registered capital, auth-cap refers to the maximum amount of share capital a company can issue, as mentioned in its MOA (Memorandum of Association). As per the Companies Act 2013, section 2(8), an authorized capital is a limit specified in MOA under its capital clause. Every entity intending to incorporate a private limited company is mandated to specify this amount, while it is not necessary to pay the entire amount in one go at the initial stages

What is private limited company?

Apart from the provision of minimum paid-up share capital, a Pvt ltd company is characterized by the following aspects:

Memorandum of Association and Articles of Association

MOA (Memorandum of Association) and AOA (Articles of Association) are two crucial documents of a company. Every entity planning to set up a company is required to file these documents during the application process, stating their area of operations, objectives, internal rules, etc.

• Memorandum of Association: As per the Companies Act, an MOA includes details regarding the state in which the company’s registered office is located, liability of members, amount of share capital, number of each share a subscriber will take, its objects, etc. MOA must have the following clauses:
  1. Name Clause
  2. Registered Office Clause
  3. Liability Clause
  4. Object Clause
  5. Capital Clause
• Articles of Association: A company’s AOA contains regulations for its management. It defines the rules and regulations through which a company will be administered and includes aspects such as directors’ appointments, internal procedures, and provision for entrenchment, among others.

Types of Private Limited Companies in India

In India, a private limited company can be established with different degrees of liability for its shareholders and members. While submitting the MOA, an applicant will come across the term ‘Liability Clause’. In this clause, the person has to choose what type of private company they wish to create, i.e., specifying the extent of liability of its members. The three choices for a Private Company are as follows:

1. Company Limited by Shares: In such companies, members’ liability remains restricted to the amount they are yet to pay. In simple words, before starting a company, company owners (shareholders) invest a certain amount for the shares (a portion of the company) they get in return. However, let’s assume that the person only paid half of the invested amount while the rest remains unpaid (usually the case). Thus, if the company goes bankrupt or faces any financial obstacle, the shareholders will be liable to pay only that ‘unpaid’ amount and their personal assets or wealth cannot be seized to repay any company’s obligations.
2. Company Limited by Guarantee: The owners of such companies are known as ‘guarantors’ instead of shareholders. Member’s liability in such companies remains limited to the amount they have agreed to pay (guaranteed) during its formation. These companies are often charitable or section 8 companies, where owners do not share the company’s profits and neither own the shares.
3. Unlimited Company: Contrary to a company limited by shares, an unlimited company imposes no limit on the liability of its members. Thus, in case the company goes bankrupt, creditors can go after the personal wealth of shareholders and cover their debts. This type is ideal for businesses with low-risk profiles and are often exempt from annual accounts filing with ROC.

How to Register a Private Limited Company?

For Pvt Ltd Company Registration, an applicant has to undertake the following steps:

Documents Required to Incorporate Pvt Ltd Company in India

To register a Pvt ltd company, the following documents must be submitted is accurate, complete, and timely manner:

1. Identity Proof of directors and shareholders: PAN Card (Indian Nationals), Passport (Foreign Nationals), Aadhar Card, Driving License, Voter ID Card.
2. A copy of a valid utility bill: Water bill, electricity bill, gas bill, telephone bill, etc., (not older than two months).
3. Registered Address proof of company: Ownership deed, rental agreement, NOC from the landlord, or recent utility bill of the registered office address
4. Affidavit on a stamp paper stating the willingness of subscribers to be shareholders of the company.
5. Passport-sized photographs of directors and shareholders.
6. DIN and DSC
7. MOA and AOA documents.