A Pvt Ltd is otherwise known as a private limited company, one of the most common forms of business organizations found in India, primarily distinguished through its characteristic feature of limited liability protection and has a separate legal identity. It is a privately owned and held entity that limits the ownership to only a few shareholders, which would often include family members or other close associates. The main characteristics of a private limited company are limited liability, so personal responsibility for debts does not fall on the shareholders, and shares can also not be transferred freely, hence only sold within the group.

Private Limited Company Registration Process in India is governed by The Company Act, 2013. It secures and eases facilitation in raising capital, provide credibility along with flexibility in operations, which is effective for small and medium-sized entities as well as start-ups. Moreover, a private limited company continues its business without getting affected by a change in the shareholders.

What is a Private Limited Company?

Private Limited Company (Pvt Ltd) is defined under Section 2(68) of the Companies Act 2013. As an entity that doesn't allow transferable shares. According to the Act - a private limited company restrains the transfer of shares and limits the total number of persons. Who may be its members or owners at any given point is 200 members.

It prevents share transferability to ensure control at the hands of a particular group of persons. Normally family or close relatives or associates. It prohibits public invitation to subscribe to the shares or the debentures of the company. Therefore cannot mobilize shares to the stock exchange and cannot collect funds from the public.

Liability is strictly limited to the amount unpaid on their shares, thus making them enjoy personal safety from the liabilities of the company. The private limited company shall have a minimum of two directors and two shareholders at minimum, and it must have "Private Limited" or "Pvt Ltd" as a part of its name. In case it has only one Director, then it becomes a One Person Company.

Types of Private Limited Companies

The Companies Act 2013 allows the incorporation of various types of companies. Depending upon the business requirements and the structure of a Pvt. Ltd., the Company may be classified into - Ownership Liability etc.

a) COMPANY LIMITED BY SHARES

It is the most common form of a Pvt. Ltd. company where the liability of the shareholders. Shareholders is capped to the amount remaining unpaid on their shares.

b) COMPANY LIMITED BY GUARANTEE

The liability of members is restricted to an agreed-upon amount they pay on winding up, normally for non-profits.

c) UNLIMITED COMPANY

All members have unlimited liability that gives personal responsibility for debts against the company, but this type is less common.

Why Choose Private Limited Company Registration?

The Private Limited Company registration process is not only easy and affordable but also carries credibility as a legally incorporated entity. The benefits of registration of a private limited company are:

a) Limited Liability

Limited Liability is the first among the many benefits of private limited company registration. Unlike proprietorships and partnerships, private limited companies exist as separate legal entities from their shareholders.

b) Perpetual Existence

A private limited company’s existence does not depend on its owner’s lifespan. As a company has a distinct legal identity of its own. It means that a private limited company shall continue to exist even in some adverse cases. It shall only cease to exist when wound up or voluntarily dissolved.

c) Power to sue

Being legally incorporated entities, private limited companies have the right to sue third parties in a court of law for disputes.

d) Low Income Tax

Section 80IAC of the Income Tax Act offers 3 consecutive financial years as tax holidays for shareholders of startups either as a private limited company or an LLP. A low-cost burden of legal and tax compliances is one of the benefits of Private Limited Company registration.

Eligibility Criteria for Private Limited Company Registration

A company should have membership between 2 and 200.
There should be at least two directors and two shareholders
Every director must have a DIN and must have been resident in India for not less than 182 days during any preceding calendar year.

Documents Required for Private Limited Company Registration

In private limited company registration process, the company’s proposed directors would have to submit the following documents as identity proof:

a) Identity Proof of Directors and Shareholders:

PAN Card (mandatory for Indian citizens).

Passport (for foreign nationals).

b) Address Proof of Directors and Shareholders:

Voter ID, Aadhaar Card, Driving License, or Passport.

c) Residential Proof:

Bank Statement, Electricity Bill, Telephone Bill (not older than 2 months).

d) Proof of Registered Office:

If the accommodation is rented, a rent agreement or lease deed and a no objection certificate are issued by the owner of the property.

Utility Bill (Electricity, Water, or Telephone Bill) of the office location, not older than 2 months.

e) Photographs:

Passport-sized photographs of all directors and shareholders.

f) Digital Signature Certificate (DSC)

DSC for all directors and authorized signatories for filing forms electronically.

g) Director Identification Number (DIN):

DIN for all proposed directors, applied via the incorporation process.
For Indian Nationals – PAN
For Foreign Nationals – Passport

Step-by-Step Private Limited Company Registration Process

Step by Step how to register a Private Limited Company in India:

Apply for 2 'Name Approvals' as proposed company names from MCA (Ministry of Corporate Affairs). In case it declines, then apply with 2 more names.
Generate DSC - Obtain Digital Signature Certificates of all directors and shareholders from government-approved centers.
DIN - Application to file for the director identification number at the MCA portal and via form DIR-3.
Name Approval - Apply for name approval online and thereafter submit it to the Registrar of Companies (RoC) through the SPICe+ form with an applicable fee.
Form SPICe+ INC-32 - Process incorporation through the MCA portal using the approved name with the SPICe+ form.
Draft and submit MoA and AoA through MCA portal
PAN and TAN - Permanent account number, tax deduction, and collection account number respectively PAN and TAN obtained by using AGILE-PRO through online service.
Bank account - Open an account with a bank in the company's name, and deposit at least the minimum capital of ₹1 lakh.
Obtain Business Licenses - All licenses and permits that a business requires according to the nature of business-for example, trade licenses, environmental clearances, and intellectual property registrations.
Make Tax Compliance - File for GST if its annual turnover is above ₹40 lahks, ₹20 lakh for special category states and other tax compliance items.
Begin Business Operations - With all this in hand, begin business operations.

Cost of Private Limited Company Registration

Lexlevel Services provides Company Incorporation services within INR 20,000. The Govt fees charges for a Private Ltd. registration depends on share capital, number of directors, stamp duty of the state where you want to register the company and other fees.

Particulars- Amount (in ₹)

Name Reservation- ₹1000
DIN Application Fee- ₹500 per DIN
DSC Fee- ₹2000 per DSC
PAN Application Fee- ₹66
TAN Application Fee- ₹65
Stamp Duty - Varies from state to state
Professional Tax Registration Fee- Varies from state to state

Post-Incorporation Compliance for Private Limited Companies

After the incorporation of the company, the directors and shareholders will come across the private limited company legal requirements involved.

a) First Meeting

According to Section 173 (1), of The Companies Act 2013 - The company shall call a meeting of the Board of Directors within less than 30 days from the incorporation date.

b) Bank account:

Companies need to open a bank account even before they approach the authorities with regard to company incorporation. The company, being an artificial entity, cannot conduct any kind of transaction in anyone's name - naturally speaking.

c) Statutory address:

According to Section 12(1), within 30 days from the date of incorporation, a company shall have a registered office. That shall be its statutory or legal address. The company shall intimate the same to the registrar within 30 days from the date of incorporation.

d) Auditor:

As per Section 139(1), the BOD shall appoint the first auditor, other than in the case of a Government Company, within 30 days from the date the company is registered under this Act.

e) Declaration of Interest:

Every director of the company in the first meeting of the board shall declare his interest in any company/firm/body corporate / association of individuals as provided in section 184 (1) of the Companies Act 2013. Any variation thereof shall be given to the board in its first meeting held during every financial year.

f) Share certificate:

Share certificate to be issued within 60 days from the date of incorporation. Where there are additional allotments, that would mean considered to be 60 days from the date of allotment.

g) Books of Accounts:

According to Section 128 - Every company shall maintain proper books of accounts which shall represent an accurate view of the affairs of the company. The accounting is done on an accrual basis.

h) Commencement of business certificate

The company shall obtain a certificate of commencement of business with in 180 days. There is a requirement to file a disclosure made by the directors of the company.

Lexlevel Services provides the following Annual Compliances for Companies

INC 22, INC 20A, MCA & ROC Compliance – MGT7, AOC 4, ADT 1, DIR 12, Director KYC, Board Meetings, Annual Return, Income Tax Return, Director Report, Shareholding pattern, Auditor appointment, Annual General Meeting, GST Registration, GST 3B, GSTR1, GSTR 9, TDS, Annual Accounting, Maintenance of statutory Registers & Books of accounts.

Common Mistakes to Avoid During Private Limited Company Registration

Incorrect company names
Incorrect company types
Incorrect company description
Unnecessary appointments of directors
Not drafting and registering the written rental agreement
The absence of founder and shareholders agreement
No thorough information on local law
Not seeking professional help.

Timeline for Private Limited Company Registration

The process may take different periods considering aspects that may either shorten or extend the period, such as accessing the company name, documents required, and even government authorities. It may, therefore, take about 12-18 days to register a private limited company in India.

Conclusion:

The process of incorporation and related legal compliances, which startups struggle to afford in the initial stages of their business. As far as the legal status is concerned, startups are anyway eligible as private limited company registration or as an LLP, or a partnership firm only. Among these, a private limited company is the most viable option, there are various benefits of private limited company registration as compared to the others.

Frequently Asked Questions (FAQ):

Q1. How to start a Private Limited Company in India?

It is easy to start a company. All it asks for, for starting is the PAN card of the promoters, address proof, and bank statement copies of the promoters along with address proof for the registered office address. A company can be started within 3 – 7 days.

Q2. How to register a Private Limited Company?

To register a Private Limited Company-

Obtain a Digital Signature Certificate.
Obtain DIN
Reserve company name by using Reserve Unique Name or by Simplified Proforma for Incorporating Company Electronically Plus form.
Draft memorandum of association and article of association.
Obtain the certificate of incorporation.
Apply pan (permanent account number) and tan (tax deduction and collection account number.
Open a bank account.
Complete post-compliance incorporation

Q3. What is the minimum capital required for the registration of a Private Limited Company?

Paid-up capital for a private company in India is a minimum of INR 1 lakh or about USD 1,300.

Q4. How many days does it take to register a private limited company in India?

It is also stated that when a Private Limited Company is to be incorporated in India then it requires 10-18 working days if all the requirements are met and nothing seems complicated, whereas actual time will vary with different circumstances.

Q5. Can a Private Limited Company have foreign shareholders?

Yes, an Indian Private Limited Company can have foreign shareholders. Most sectors have opened up to FDI under the automatic route, where prior approval from the government is not needed, although there are sectoral caps, regulations, and compliance requirements.

Q6. What are the tax benefits of a Private Limited Company?

Private companies have many tax benefits as well. A number of those include lower rates of corporation tax, sometimes even completely exempt under Section 80IAC of the Income Tax Act, and also split the income between the company and its shareholder. Plus, some of the costs involved in running the business can be set off as deductible and thus reduce the tax liability of the company.

Q7. What is the difference between a Private Limited Company and LLP?

LLP is that organization in which partners have limited liability and no one is liable for the acts performed by other partners, whereas, in Pvt. Ltd company, shares are held by shareholders and they are having limited liability and their shares can be transferred to someone else. LLP is having more compliance and tax burden compared to Pvt. Ltd. However, it has little scope for raising funds from external sources.

Q8. Can a single person register a Private Limited Company?

Earlier, in a private limited company, minimum 2 directors and 2 shareholders must be required. No person can form a private company. However, a new concept of OPC was provided according to Section 2(62) in the Company's Act 2013 where a single person can form a private limited company.

Q9. What documents are needed for Private Limited Company registration?

Above all, the vital documents which are necessary for incorporation of a Private Limited Company include: PAN card, utility bill for address proof, Director Identification Number, or DIN, passport-sized photographs, Memorandum of Association and Articles of Association, No Objection Certificate obtained from the landlord for the registered office address proof and declarations by directors and subscribers; in case of foreign nationals additional, notarized documents and copies of passport.

Q10. What is the cost of Private Limited Company registration in India?

The Costs of a Private Limited Company alone would be close to ₹30,000/. This is again dependent on several factors like the number of members and directors in the company, the authorized share capital of the firm, the stamp duty of the state where the company is being registered, and also the professional fee involved in getting the company registered. A few more overheads and mandatorily attracting professional fees, say ₹2000 to ₹20000. Therefore, expenses in the sense of running a private company go way beyond just getting registered.

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