Things Nobody Told You About Setting up a Private Limited Company

A startup founder has a million things on his mind. How to set up an entity and which entity to choose occupies a major part of his initial worries. Informed decisions are the best. Hence, we will tell you things about setting up a Private Limited Company. Private companies have been seen to be a preferred mode for startups, primarily due to investor confidence and the opportunity to raise equity funding. However, they have a high cost of formation and have a complex procedure for setting up. Read on to know things nobody tells you about setting up a Private Limited Company. 

Requirements for setting up a Private Limited Company

Following are the requirements for setting up a private limited company:-

1. Members: The minimum number of members are two and the maximum number of members are 200 for setting up a Private Limited Company. If two or more persons are jointly holding shares in a private limited company, then they would be considered as a single member. Also, the persons who are are present or past employees will not be counted in the number of members. 
2. Memorandum of Association: The Memorandum of Association is the guiding document of a company. It contains the Name of the Company with last words “Private Limited”, details of the Registered Office, objects for which the company was formed and what would be the liability of its members. 
3. Articles of Association: The Articles of Association shall contain Regulations for management of the Company. It regulates the relations inside the company and between the members. 
4. Directors: There should be minimum 2 Directors in the case of a Private Limited Company.
5. Minimum Authorized Capital: A private limited company requires a minimum Authorised capital of INR 1 Lakh. This is the money, the company receives from its shareholders.
    

Steps for setting up a Private Limited Company

The following steps are required to be followed while setting up a private limited company: 

1. Apply for the Digital Signature Certificate (DSC) of the proposed Directors of the Private Limited Company.
2. Apply for the Director Identification Number (DIN) of the proposed Directors of the Private Limited Company.
3. Apply for the availability of names. Make sure to choose a unique name.
4. File an application for Incorporation of Company with the Registrar within the jurisdiction of the registered office of the company. 
5. File of Memorandum of Association (MoA) and Articles of Association (AoA).
6. Apply for PAN and TAN of the Private Limited Company
7. The Registrar of Companies (RoC) issues Certificate of Incorporation along with PAN and TAN of the Private Limited Company.
8. Open a Current account on the Private Limited Company’s Name.

The Ministry of Corporate Affairs has now prescribed a default option by the name of Simplified Proforma for Incorporating Company Electronically (SPICe). A Form INC-32 is to be filed through the means of SPICe. Along with this, there is also filing of eMoA (Electronically Memorandum of Association) and eAoA (Electronically Articles of Association. These are in forms INC-33 and INC-34 respectively. 

Those who read this article also consulted a Startup Expert. 

Conclusion

A private limited company is a preferred entity for startups as it is easier to offer equity in return for funding. A private limited company also enables the founders to issue shares to employees and ensure attractive employee benefits and hiring and retention of good talent