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Procedure, Document Checklist And Costs For Incorporation Of A Private Limited Company
Company

Procedure, Document Checklist And Costs For Incorporation Of A Private Limited Company

Introduction

A Private Limited Company is one that has been established under the Indian Companies Act, 2013 or any prior Companies Act. The prefix "Limited" in the name suggests that the members', or owners', liability is limited to a particular amount. There are however some restrictions in place, in addition to the benefits provided.

In the Indian market, the most common and dominant type is the private limited company. This sort of company is designed specifically for small businesses. The members of a Private Limited Company have a fixed financial commitment, which is entirely dependent on the number of shares they each own.

Also read Partnership firm v. LLP in India. 

The process of SPICe (Simplified Proforma for Incorporating Company Electronically) Private Limited Company Incorporation Filing Process is required to be done. SPICe is a single form that integrates the applications for Reservation of Company Name, Allotment of DIN for Directors and Incorporation of a New Company along with allotment of Permanent Account Number (PAN) and Tax Collection and Deduction Account Number (TAN) to the New Company.

Procedure followed

The essential paperwork needs to be filed on the official MCA website (www.mca.gov.in), which ensures a quick and uncomplicated process. With the "Make in India" initiative, the Indian government currently supports the incorporation of businesses in India. It is only after following the procedures outlined in the Act that the company can be formed and started. The steps that are followed to register a private limited company are as below. It takes around 15 to 18 days to complete the entire procedure.

  1. The very first step to register a private limited company is to obtain the DSC (Digital Signature Certificate) of the Directors and Subscribers to Memorandum of Association. An e-form is filed with the Ministry after attaching the DSC of the Authorized Signatory for incorporation of the Company. Also, it is required for the application of DIN of the directors. Further, DSC of the subscriber is needed to file Memorandum of Association and Articles of Association.
  2. The next step is to obtain the Director Identification Number (DIN). Under this registration step, the Ministry allots the DIN to the Individual for acting as Director in a company. It is basically a unique number such as PAN Card allotted to any person and which is applied and allotted once in the lifetime.
  3. The next stage in the company registration process is to submit an application for the proposed firm's name reservation. The application must be submitted on Form INC-1, which allows for a maximum of six names to be submitted in order of preference. It is important to note that the names chosen are not identical to or substantially equivalent to any existing Company, LLP, or Registered Trademark. Once the name is approved, it is reserved for the applicant for a period of 60 days, during which time the applicant must apply for company incorporation; failure to do so will result in the name being revoked by the Ministry.
  4. Once the prospective company's name has been reserved, fill out the Application for Certificate of Incorporation in SPICe form and attach the SPICe MOA and SPICe AOA. The application is submitted by paying the required Stamp Duty on the portal, as applicable in the concerned state. Once the application is filed, an online form for the company's PAN and TAN is generated, which must be completed and sent along with the DSC and MCA. The concerned Registrar of Companies may give the Certificate of Incorporation after thorough examination of the application and supporting papers (COI). It is a conclusive confirmation of the company's existence, containing the date of incorporation, Company Identification Number (CIN), and Permanent Account Number (PAN), as well as the Registrar's signature and seal. As soon as the Certificate of Incorporation is issued, the firm can begin operating as soon as the Incorporation procedure is completed.

You may also like to read MSME Registration in India

Documents Required

Ensuring proper documentation is an integral aspect of the registration process of the Private Limited Company. The documents thus required for the registration of a private limited company are as follows:

  • Directors and Shareholders’ Identity Proofs such as PAN card, Aadhaar Card / Passport / Driving License / Voter Identity Card; Address Proofs such as Telephone Bill / Mobile Bill / Electricity Bill / Water Bill; Bank Statement; Passport size Photographs. All the Copies of documents being self-attested by the applicant.
  • Documents are to be signed by the Directors include the Consent to Act as Director: Form DIR-2, Details for DIN, Declaration of DIN.
  • Documents to be signed by Shareholders include the Application for Digital Signature Certificate; Declaration by Subscribers & Director: INC-9 4. A no-objection letter from the Owner of Address to use the address of the registered office of the Company.

 

Costs incurred

India has a diverse range of business types, businesses, and services. Regardless of the sort of business, all of them require some form of government registration. For example, GST registration, VAT registration, IEC registration if you are in the import export business, Professional Tax registration, EPF registration if you are in some type of profession, MSME registration if you are a small and medium firm, and so on. Professional fees, as well as government fees, are associated with several types of registration. Registration fees might range from INR 1500 to INR 15000, depending on the complexity of the activities, state taxes, and other factors. The fees for forming a Private Limited Company vary depending on a variety of parameters such as the amount of capital, the number of shareholders, and the number of directors, among others. The cost of forming a Private Limited Company in India (Pvt Ltd Company Registration) ranges from INR 6,000 to INR 30,000, depending on the number of directors, members, authorised share capital, and professional expenses. The cost of a professional may be determined by the task's complexity. A minimum paid-up capital of Rs. 1 lakh is required for a private limited company. It could go even higher, as MCA may prescribe from time to time.

Also read Which Is Better For A Small Sized Company: LLP Or Partnership?

 

Knowing ESOPs and how it can help in retaining talent
Startup

Knowing ESOPs and how it can help in retaining talent

ESOP stands for Employee Stock Ownership Plan. An employee stock ownership plan gives workers ownership interest in the company. Employee Stock Ownership Plan is a benefit scheme for the employees. The company or organization gives the benefit to the employees of buying the shares after a certain period of time. An employee must provide service or work for a definite period of time before receiving the benefit of Employee Stock Ownership Plan. 

There are two types of Employee Stock Ownership Plan-:

 

Selective Plans 

The facility of owning some shares of the company is made available only to the senior executives. 

 

All Employee Plans

The facility of owning some shares of the company is made available to all the employees of the company 


Why do the Companies offer Employee Stock Ownership Plan? 

The companies offer stocks to the employees in order to attract and retain skilled and experienced talent. They offer stocks to the employees in a phased manner, which is a form of an incentive for the employees to work with the company for a longer duration. Many a times start-up companies or companies which cannot provide high salaries provide Stock Options to their employees. 

 

Tax Implications

The Employee Stock Ownership Plan has tax implications. It is very important to understand this before exercising the option. ESOPs are taxed at two different stages-:

While exercising – in the form of a perquisite

In this option the difference between the Fair Market Value and exercise price is taxed 

While selling – in the form of capital gain.  

The employee can sell the shares received however there is a certain amount of time period after which the employee can buy and then sell the shares. At the time of selling if the employee gets money higher than that of Fair Market Value then he will be liable to pay the Capital Gains Tax. The amount of Capital Gains Tax is determined on the period of holding, i.e. from the date of exercise to the date of sale. 

 

Benefits of Employee Stock Ownership Plan to the Employers

When the employees are rewarded with stocks, they would by default give in their 100 percent of hard work and efforts as they themselves will also benefit when the prices of their company’s shares soar up. Rewarding the hard work and dedication of the employee’s work is necessary, by giving them stock would also remove the necessity of providing cash incentives to the employees at the same time giving them incentives. 

 

Challenges of having an Employee Stock Ownership Plan for the Employers

Employee Stock Ownership Plan has complex rules and regulations. Companies which provide Stock Ownership benefit to the employees must have a proper administration system which works towards providing of Stock ownership to the employees. If a company does not have proper staff to look into the administration of Employee Stock Ownership Plan then it could invite certain risk issues. Upon establishing Employee Stock Ownership Plan the company must have proper administration, staff, including third party administration, legal costs, trustees. It must be aware of the costs that will include while providing this facility. 

 

Disadvantages of Employee Stock Ownership Plan for the Employees 

Many times under this scheme the employees invest a large part of their savings in one investment scheme, which is not advisable. Any person saving more than 10 percent of his/her salary is warned by the investors. Ideally, it is not logical to save a large amount of savings in the company’s stocks, as if at any point the company fairs poorly or runs into losses then a huge amount of savings of an employee will be lost. 

An ESOP plan is one of the best ways for a startup to attract and retain talent. In order for the company to grant ESOPs to its employees, it needs to be registered as a Private Limited Company.
 
Things Nobody Told You About Setting up a Private Limited Company
Company

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