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July 21, 2020

5 Simple Steps to form a Private Limited Company

by Rubina Dsouza in Compliance Law

5 Simple Steps to form a Private Limited Company

What do you mean by a Private Limited Company?

A private limited company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Advantages of incorporating a Private Limited Company

  1. A private company is a separate legal entity established under the Act. A company form of organization has wide legal capacity and can own property and also incur debts.
  2. The members (Shareholders/Directors) of a company have no personal liability to the creditors of a company for such debts.
  3. A private limited company has ‘perpetual succession’. A company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership.
  4. Unlike proprietorships and partnerships, in a limited liability company, the liability of the members in respect of the company’s debts is limited. The liability of the members of a company is limited only to the extent of the face value of shares taken up by them.
  5. A company being a distinct legal entity, can acquire, own, enjoy and alienate property in its own name. The shareholders are not the owners of the company’s property. The company itself is the true owner
  6. In the company form of organization it is possible for a company to make a valid and effective contract with any of its members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the company.
  7. A company enjoys better sources for the borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

Steps to register a Private Limited Company

Step 1: Obtain Digital Signature Certificate (DSC)

  1. The first and foremost step to register a private limited company is to acquire the DSC of the Directors and Subscribers to MOA.
  2. Any e-form is filed with the Ministry after affixing the DSC of the Authorised Signatory for Company Incorporation.
  3. It is also required for the application of DIN of the directors.
  4. DSC is mandatory for all subscribers and witnesses in the memorandum and articles of association.
  5. One must obtain the DSC from government recognized certifying agencies.

Step 2: Obtain Director Identification Number (DIN) for Directors

  1. DIN is an identification number for a director.
  2. It has to be obtained by anyone who wants to be a director in a company.
  3. One DIN is enough to be a director in any number of companies.
  4. DIN allotment is carried out by the Ministry to the Individual for acting as Director in a company.
  5. Forms for DIN application and modification thereof:

i. SPICe Form: Application for allotment of DINs to the proposed first Directors in respect of new companies shall be made in SPICe form only.

ii. DIR-3 Form: Any person intending to become a director in an existing company shall have to make an application in eForm DIR-3 for allotment of DIN.

iii. DIR-6 Form: Any changes in the particulars of the directors shall be filed in form DIR-6.

Step 3: Name approval Application

  1. The next step in company registration involves making an application for reservation of name for the proposed company.
  2. MCA has simplified the Company Name Approval Process from 26thJanuary 2017 by introducing a new simple web-based application called RUN (Reserve Unique Name) for Company Registration.
  3. Under the RUN process, the applicant can submit 2 proposed names for approval in the order of preference. In case the applied names are not available for registration, the ministry will give 1 chance to resubmit the application with another set of 2 names for approval.
  4. Alternatively, the applicant can apply Company Name through the integrated SPICE Application for Company Registration.
  5. In that case, one can submit only 1 name for seeking approval. However, there are 2 changes of re-submissions for SPICE Application.
  6. Once the name applied is approved, it is reserved for the applicant for a period of 20 days, in span of which one has to apply for the Incorporation of Company, non-compliance of which leads to withdrawal of the name granted by the Ministry.

Step 4: Preparation of Documents for Incorporation of Company:

After approval of name or for Incorporation of Company applicant has to prepare the following below mentioned Documents;

  1. INC-9 – Declaration by first Subscriber(s) and Director(s)
  2. DIR-2- Declaration from first Directors along with Copy of Proof of Identity and residential address.
  3. NOC from the owner of the property
  4. Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent receipts)
  5. Copy of the utility bills
  6. In case of subscribers/ Director does not have a DIN, it is mandatory to attach: Proof of identity and residential address of the subscribers

Step 5: Application for Certificate of Incorporation

Once all the above mentioned documents/ information are available and the name is reserved, applicant has to fill the information in the e-form “Spice” INC-32 accompanied with SPICe_MOA and SPICe_AOA. Spice” INC-32 is a simplified proforma for incorporating a company electronically. The application is submitted by paying the requisite Stamp Duty as applicable in case of concerned state on the portal.

Formulation of Memorandum of Association (MOA) and Articles of Association (AOA)

MOA and AOA are two most important documents for any company. MOA of company states the scope of operations of the company, whereas AOA states the rules and how the company will be carrying the operations as per the laid Act. In case of a Private Limited company, the Articles shall mandatory consist the following three clauses in addition to general clauses:

  1. Limitation on the number of members up to 200
  2. Restriction on transfer of shares.
  3. Prohibition on accepting securities from public.

Through the single form SPICe, one can also apply for company’s PAN and TAN by using forms 49A for PAN and 49B for TAN. The system will auto-generate these forms after the submission of SPICe form. One has to download it, affix digital signatures and upload both forms on MCA portal, If all the details in the form are duly filled in along with the required documents. After due verification of the application and documents provided the concerned ROC may grant the Certificate of Incorporation (COI).

Once, the Certificate of Incorporation is granted, the company may commence the Business Activity as the Incorporation procedure is completed.

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