Steps for Forming a Private Limited Company in India

Ashish M. Shaji

10 Oct, 2020

If you wish to start a business in India, then you can choose to register a private limited company which is the best option for you. In this article, we will discuss the steps for forming a Private Limited Company as well as other factors you should know before registering a company in India.

What are the steps for forming a Private Limited Company as per Companies Act 2013?

Step 1 – Corporate structure

The Companies Act, 2013 details provisions for the incorporation of various types of companies, which can be broadly classified into three main categories, i.e., Private Company, Public Company, and One Person Company. These are further categorized on the basis of the limited and unlimited company. The Company Act^[1] specifies different requirements in terms of members, directors, capital, liability, etc. for the incorporation of different types of companies. Based on these requirements, one can choose the type of entity he/she intends to incorporate.

Step 2 – Plan your control in business

As a Start-up founder, there should be an intention to keep the management control of the company within limited hands, to invite capital contribution from few, and the profits shall also be shared among few, the type of company to be formed should be a Private Company. It is different from the one person company due to the fact that the latter is being formed, managed and operated by only one person, while the former requires at least two members and two directors. The maximum number of members in the private company is also limited to 200. On the other hand, there is no restriction on the number of members in the public company, the minimum being seven. Public limited company registration is not preferred if you are planning to raise a venture fund.

Ease of formation, limited compliance, and limited capital contribution make a private company a lucrative option to carry on business.

Points to consider while registering a Private Limited Company

• There is no requirement of minimum paid up capital.
• The minimum number of members shall be 2 and the maximum number shall be 200.
• The minimum number of directors shall be 2, maximum being 15.
• There shall be a restriction on the transfer of shares of the members.
• No subscription to the capital of the company shall be invited from the general public.

If the promoters are assured about fulfilling the above criteria in respect of the formation of a private company, then the procedure to incorporate shall be undertaken.

Step 3 – Apply for DSC, DIN & Name Approval

• Fill out an application for DIN in Form DIR-3 and DSC for the first directors of the proposed company
• Choose a name for the company along with 5 alternative names and apply to the concerned ROC for the name approval in Form INC-1.
• Draft Memorandum of Association (MOA) and Article of Association (AOA) with the help of professionals in order to avoid any non-compliance with the Act.

Step 4 – File RUN / Final incorporation form

The last stage in Private Limited Company Registration procedure is to File SPICe plus or INC 32/ RUN for incorporation along with the following mandatory attachments:

• Consent of the Directors in Form DIR-2
• Affidavit by the subscribers to the memorandum in Form INC-9
• Proof of address for the proposed registered office
• ID proof of the proposed directors
• Address proof of the proposed directors

File form SPICe plus MOA and SPICe plus AOA for the Articles and Memorandum respectively. And, get the Certificate of Incorporation from the ROC in Form No. INC 11 indicating the name, CI, and PAN of the newly incorporated company.

Once the online company registration is done with the ROC, the promoters shall ensure registration under any other applicable laws depending upon the operations which the company undertakes like service tax, sales tax, etc.

What are the benefits of Company Incorporation?

The benefits of Company Incorporation are as follows:

• Protects from personal liability and other risks;
• Increases credibility and trust, thereby attracts more customers;
• Gets higher credit rating from banks as well as from reliable investors;
• Increases the potential growth for expansion.

Conclusion

It should be kept in mind that a company, which duly complies with all the rules and regulations applicable, shall be a successful entity in the long run.

Read our article: How to Provide an Inter-Corporate Loan by one Private Company to another Private Company?