Private Limited Company

A private company is a company which has the following characteristics:

• Shareholders right to transfer shares is restricted;
• The number of shareholders is limited to 200; and
• An invitation to the public to subscribe to any shares or debentures is prohibited.
  A Private Limited Company is the most popular form of business entity used for Foreign Investors in India, including USA investors in India. There are various requirements for forming a private limited company in India. There are various steps required to establish a business in India, before and after incorporation, as mentioned hereinafter.

Public Limited Company

A public company is defined as a company which is not a private company. The following conditions apply only to a public company:

• It must have at least seven shareholders.
• A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called trading certificate.
• It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.
• A public company is required to have at least three directors.
• It must hold statutory meetings and obtain government approval for the appointment of the management.

There are several other provisions contained in the Companies Act 1956 which are applicable only to public companies and should be consulted.

Limited Liability Partnership (LLP)

A law to allow Limited Liability Partnership (LLP) in India has been enacted by the Parliament of India recently. (Limited Liability Partnership (LLP) Act of 2008).
LLP is an alternative corporate business entity that provides the benefits of limited liability of a company but allows its members the flexibility of organizing their internal management on the basis of a mutually-arrived agreement, as is the case in a partnership firm.
This format would be quite useful for small and medium enterprises in general and for the enterprises in services sector in particular, including professionals and knowledge based enterprises.

As proposed in the Bill, LLP shall be a body corporate and a legal entity separate from its partners. It will have perpetual succession. While the LLP will be a separate legal entity, liable to the full extent of its assets, the liability of the partners would be limited to their agreed contribution in the LLP.
Further, no partner would be liable on account of the independent or unauthorized actions of other partners, thus allowing individual partners to be shielded from joint liability created by another partners wrongful business decisions or misconduct.

Director Identification Number - DIN

Directors for an Indian company, both Indian and foreigners, must register and get and identification number under the new requirements. It is called Director Identification Number- DIN.

Requirements for a Private Limited Company

1. A Registered Business Name: This must be followed by the word Limited' or Ltd'. The Companies Registration Office exercises some control over the choice of name, it cannot be identical (or very similar to) the name of an existing company. It won't be considered if it is offensive or illegal and the use of certain words in a company (for example, `Institute', `National') can only be used in certain circumstances. The company name must be displayed in a conspicuous place at every office, or other premises where the company carries out business.
2. A Registered Office: This need not necessarily be the same address as the business is conducted from. Quite frequently the address used for the registered office is that of the firm's solicitor or accountant. This is the address, through, where all official correspondence will go.
3. Shareholders: There must be a minimum of two shareholders (also described as `members' or `subscribers'). A private company can have up to 200 shareholders.
4. Share Capital: The company must be formed with a stated, nominal share capital divided into shares of fixed amounts. Minimum authorized capital of Indian Rupees 100,000 (US $ 2250 approximately) is required to form a private company in India.
5. Memorandum of Association: The memorandum is the company's charter. It states the company's name; the situation of its registered office; its share capital; the fact that liability is limited and, most importantly, the object for which the company has been formed. In theory, the company can only operate in the areas mentioned in the objects clause but in practice the clause is drawn to cover as wide an area as possible, and anyway a 75 per cent majority of the members of the company can change the objects whenever they like. Nevertheless, it is worth bearing in mind that directors of the company will incur personal liability if the company engages in a type of business which is not authorized by the objects clause. The memorandum must be signed by at least three shareholders.
6. Articles of Association: The document contains the internal regulations of the company, the relationship of the company to its shareholders and the relationship between the individual shareholders. Many companies don't bother to draw up their own articles but adopt (sometimes with some modifications) articles set out in the Companies Act.
7. Certificate of Incorporation: This is the document, which the registrar of companies issues to you once he has approved your choice of name and your memorandum. When you receive this document your company legally exists and is ready to trade.
8. Auditors: Every company must appoint a qualified auditor. The auditor's duty is to report to the treasurer whether or not the books of the company have been properly kept, and that the balance sheet and profit and loss account presents (or doesn't present) a true and fair view of the company's affairs and complies with the Companies Act. Auditors are appointed or re-appointed at general meetings at which annual accounts are presented, and they hold office from the conclusion of the meeting until the next general meeting.
9. Accounts: The Companies Act lays down strict rules on accounting. Every company must maintain a set of records, which show the financial position at any one time with reasonable accuracy. The accounts comprise a profit and loss account and balance sheet with the auditors' and directors' reports appended. A new company's accounting reference period begins on its incorporation and runs until the following 31st March - unless the company notifies the registrar of companies otherwise. Within ten months of the end of an accounting reference period, an audited set of accounts must be laid before the shareholders at a general meeting and a set delivered to the registrar of companies.
10. Registers, etc.: In addition to the accounts books, companies are required to have: a register of members and share ledger; a register of directors and secretaries; a register of share transfers; a register of charges; a register of debenture holders; a book can be purchased to hold all of the above. This will be provided automatically if you buy a running concern.
11. Company Seal: All companies must have an engraved seal. This must be impressed on share certificates and must be used whenever the company has to execute a deed. Again, this is included in the ready-made company package.

Corporate Documents for Registration of a Company

For incorporating a company in India, an application for registration should be submitted to the registrar of companies with the following documents:

1. Memorandum of Association;
2. Articles of Association;
3. A declaration signed by a person named in the articles of the proposed company as a director, manager, or secretary of the company, or by an advocate of the Supreme Court or High Court, or by an attorney entitled to appear before the High Court, or by a chartered accountant practicing in India stating that all the requirements of the Companies Act 1956 and the applicable rules with respect to the registration and other matters have been complied with
4. A list of persons who have consented to act as directors of the company.
5. If the proposed company is a public company, consent of very person prepared to act as a director must be submitted in a prescribed form;
6. Information about directors, managing directors and managers and secretary must be submitted in a prescribed form;
7. Information about the registered office in a prescribed form;
8. Power of attorney in favor of one of the promoters or any other person, authorizing him/her to make corrections in the documents submitted to the registrar of the companies, if it becomes necessary; and
9. Applicable registration fee payable to the registrar of the companies.

Advantages of Incorporating in India

• Many tax exemptions available to the company set up in Special Economic Zone;
• Many tax incentives available to IT companies;
• India has got double taxation treaties with many countries;
• Minimum authorized capital of only INR 100,000 (US $ 2250 approximately) is required to form a private company in India;
• Skilled and intelligent employees available at nominal rate;
• With its large base of English speaking skilled human resource, it is most sought after destination for business process outsourcing, Knowledge processing etc.

Applicable Laws for Forming a Company in India

The laws applicable for incorporating a company in India include the India Companies Act 2013, read with Companies (Central Governments') General Rules and Forms, the Indian Income Tax Act, and other laws & regulations. The previous law was India Companies Act of 1956. The Foreign Exchange Management Act of 1999 is applicable for foreign investments and transactions.

How can I become eligible to get benefits under the Startup India Initiative?

Only the below stated entities qualify as a "Startup" for the purpose of Government schemes

• Private Limited Company
• Registered Partnership Firm
• Limited Liability Partnership Further conditions are:
• Not more than 5 years have passed from the date of its incorporation/ registration
• Turnover for any of the financial years has not exceeded INR 25 crore
• It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property

Our experts shall guide you on how you can get registered under the Startup India Initiative and avail the benefits.

I want to start a business in app development. What other registrations will apply to me?

Apart from getting your GST registration, you must also consider protecting your brand by registering the trademark for your brand. Also, if you are building any proprietary software or any other intellectual property, you must secure a copyright. Our experts can assist you with trademark and copyright registration

I need to raise capital from external sources. I am considering approaching Investors. Do i get any advantage on getting registered as a private limited company over other forms?

• The capital structure of a private limited company can easily accommodate equity funding. So Venture Capitalists prefer pvt. Ltd. over any other structure.
• Being a regulations compliant entity, it becomes easy to attract capital infusion from financial institutions like banks, NBFCs etc.

Do I need to be physically present during this process?

No, your physical presence is not required during the process.

Is stamp duty payable during incorporation process?

Yes, Stamp duty charges are imposed by the state in which the registered office is proposed to be located. The charges are on MOA, AOA & form INC 32. These charges are covered under the plan for all the states except Punjab & Madhya Pradesh. Our experts will guide you on additional charges if any for Punjab & Madhya Pradesh.

How much time is needed to set up a private limited company?

The registration process gets completed when you get a certificate of incorporation(COI) issued by the registrar. The application can processed within 7 working days.

I already have my digital signature certificate and DIN. Will the package value remain the same?

In case, you already have a DSC and DIN, our experts will offer you some concession accordingly on the above package.

What is the government fee applicable for a Plc incorporation?

Below are the charges applicable for DIN and other government forms:

• DIN (2 Nos): Rs.1000
• RUN Form: Rs.1000
• AoA: Rs.1000 (up to Rs.10 lakh of authorized capital)
• MoA: Rs.1000

What is the stamp duty payable for company incorporation?

Below is the stamp duty payable, depends on the state you incorporate and your authorized sharecapital up to Rs. 10 Lakh: These are the charges in Karnataka:

• AoA: Rs.1000
• Moa: Rs.1000
• Form 32: Rs.20

Apart from this, notary charges of Rs.340 will apply for two director affidavits and related stamp duty.

Can an NRI also become a director in company? And what additional documents will be required to be submitted?

Yes, an NRI or any foriegn national can become a director in a private limited company. But such person can be taken as a director only when there is one director who is a Resident of India. Additional documents required:

• Copy of Passport Copy Which is attested by Consulate of Indian Embassy or Foreign Public Notary.
• Copy of Driving License/ Bank Statement or Electricity Bills copy or Any Property Tax Payment Receipt which is attested by Consulate of Indian Embassy or Foreign Public Notary. RBI approval is required for foreign capital contribution. Additional charges will be applicable for RBI approval. Our experts will advise you on the applicable charges.

I and my partner are both directors and shareholders in our company. We wish to bring in two additional shareholders as well. Is that covered in the package?

In the current package, we cover upto 2 digital signatures for two directors. For two additional shareholders, you need to secure two additional digital signatures certificates. We offer digital signature certificate

Our company would like to bring in a foreign citizen as a director. Is this covered in your package?

To bring in additional director, you need to secure digital signature (DSC ).
Only passport of the foreign director is required. In some countries, residency certificate will be provided. These need to be submitted for the application. Any incidental charges here is not covered in the package.

Our company would like to bring a non-resident Indian as a director in the company. Is this included in the package?

To bring in additional director, you need to secure two digital signatures (DSC)
If the individual is residing outside India at the time of the application, then he or she needs to get the PAN, Aadhaar, current address (in the country of residence), permanent address attested by Indian embassy in that country. Any incidental charges here is not covered in the package.

My details on my documents have a difference. Can I still incorporate my company using them?

You will need to have exactly the same details on all your documents to incorporate your company.

Why is there delay in getting our incorporation certificate?

Due to the increasing enthusiasm among too many entrepreneurs who wish to incorporate their companies, the MCA has made stringent rules to approve the company name and issue the certificate of incorporation. Further, due to excessive demand, the PAN and TAN applications are also increasing and thus it is understood that this processing will take time too. So, we could take a range between 20-25 working days to complete the company incorporation process and receive the certificate of incorporation.