A private limited company is the structure most Indian founders pick. Here is what it is, who it suits, and how registration works today.
What it is
A company registered under the Companies Act, 2013, with its shares held privately. It needs at least two shareholders and two directors, and the same people can be both. At least one director must have stayed in India for 182 days in the financial year. The cap is 200 shareholders. There is no minimum share capital.
The company is a separate legal person. It can own property, sign contracts and sue in its own name. If it fails, the shareholders lose what they put in and no more.
Who it suits
Founders who want outside investment, because shares are easy to issue and transfer. Founders who want to offer stock options. Businesses that will borrow, since banks prefer lending to a company. Anyone who wants the business to outlive its founders.
A single freelancer with no plans to raise money is often better served by a one person company or a sole proprietorship. Both carry less filing.
The steps
Registration runs on the Ministry of Corporate Affairs portal through one integrated form, SPICe+.
- Digital signature certificates for each director. The forms are signed digitally, so this comes first.
- Name reservation. Part A of SPICe+ reserves the name. It must not match an existing company, LLP or trademark. The Registrar has discretion, so keep a second choice ready.
- Incorporation documents. The memorandum of association states the name, the registered office state, the objects and the authorised capital. The articles set the internal rules. Both are signed by the subscribers.
- Part B of SPICe+. Director identification numbers, PAN, TAN and EPFO and ESIC registration are applied for in the same form. A bank account can be opened through it too.
- Certificate of incorporation. The Registrar issues it with the corporate identity number. PAN and TAN arrive with it.
Documents
For each director and shareholder: PAN, an identity proof, a recent address proof and a photograph. For the registered office: a recent utility bill and a no objection letter from the owner.
After incorporation
The company opens a bank account, receives the subscribed capital and files a declaration of commencement of business within 180 days. It appoints its first auditor within 30 days. Its name, address and corporate identity number go on a board outside the office and on its letterheads. Every year it files financial statements and an annual return with the Registrar, and an income tax return, whether or not it traded.
Time and cost
Expect about two weeks from the day the documents are complete. The Registrar sets the pace. Government fees depend on the state and the authorised capital. They are separate from any professional fee and are not refundable once paid.
Is a private limited company the right first structure, or the one people pick because everyone else did?