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Private Limited Company Incorporation in India

Narendra Kumar

| Updated: Mar 20, 2018 | Category: Company Registration

Private-Limited-Company-Incorporation

In India, incorporation of the private limited company is governed by the Companies Act, 2013 through the Ministry of Corporate Affairs Companies Incorporation Rules, 2014. The incorporation of a private limited is very attractive it offers protection to the assets and holdings of the entrepreneur. There is a set of rules & regulations which must be followed at the time of incorporation of Private Limited Company. After due process, a certificate of incorporation is issued by the competent authority to conduct the business activity.

What is a Private Limited Company?

Private Limited Company means a company which has a minimum paid-up capital as prescribed and must contain in its articles the following restrictions, limitations, and prohibitions.

Features of Private Limited Company

  • Restrictions on the right to transfer its shares – The articles must contain a provision restricting the right of members to transfer their shares freely. However, the right of transfer may be restricted by-
    1. Authorizing the directors to refuse the transfer of shares to persons whom they do not approve.
    2. Compelling the shareholders to offer his shareholding to the existing shareholders first.
  • Limitations of membership – The articles of association of the company must contain a provision whereby the company restricts the limit of a number of its members to 200. However, the following persons are not considered in counting the number of members-
    1. Joint holders of shares in the company shall be treated as one member.
    2. At present, who is in the employment of the company.
    3. Ex-employee of the company, who have become members while in the employment of the company and have continued to be members even after termination of employment.
  • Membership of Private Company
    1. At least 2 persons are required to form a private company.
    2. 2 or more persons are required to subscribe to the names to the Memorandum of association of the company.
    3. Any person competent to contract can be a member of a private company.
    4. A company can be a member (i.e. company being a legal person) but a Partnership firm cannot be a member.
    5. A Karta or manager of HUF may sign on behalf of HUF.
  • Every Private Limited Company should suffix the word “Private Limited”.
  • No restriction on the initial capital requirement.

Process of incorporation of a Private Limited Company

The incorporation of a Private Limited company is a completely online process as there is no physical submission of a document. Private Limited Company is becoming the most popular form of business organization. The process of incorporation of Private limited company is as follows-

Apply for name approval

The authority, Ministry of Corporate Affairs has introduced a fast track process for incorporation of a Private limited company through RUN web form RUN (RESERVE UNIQUE NAME) is a web form for reserving the name of the proposed company and for changing the name of an existing company. Before obtaining a Digital Signature certificate, with RUN WEB FORM a company name can be reserved easily.

Name Option

For the name option, only one name choice can be provided. Now, for incorporation applicant can either apply through RUN service for reserving a name or use directly SPICE form for name reservation and incorporation of a company.

Reservation of name shall be made through the web service available at MCA[1] by using the RUN form or through SPICE which may either be approved or rejected by the Central Registration Centre.

Sections and Rules Applicable

A person can make an application, in such form and manner accompanied by such fee, as may be prescribed, by the Registrar for the reserving a name set out in the application as—

  1. The name of the proposed company; or
  2. The company proposes to change its name.

The Applicant has to enter the name he wants to reserve, for the incorporation of a new company or for changing the name of an existing company and are requested to ensure that the proposed name selected must comply with Rule 8 of the Companies (Incorporation) Rules, 2014 before applying for the same.

Fees for name reservation

A name reservation application shall be filed in the RUN form with the prescribed fee of Rs. 1000.

  • Application of DIN with SPICE Form

In the case of incorporation of a new company, a person can apply for DIN only through the SPICE Form. The requisite information of proposed Directors not having DIN must be filled into SPICE Forms. In the case of proposed directors not having approved DIN, the particulars of a maximum of three directors shall be mentioned in the SPICE form and DIN may be allotted to a maximum of three proposed directors through SPICE form.

In the case of companies already incorporated, DIR-3 can be filled for the appointment of the director not having DIN. An applicant shall make an application electronically in form DIR-3 to the Central Government who intends to be appointed as director of the existing company for allotment of DIN. The fees for DIN application shall be as provided under the Companies (Registration Offices and Fees) Rules, 2014.

Steps for Incorporation of the Company through Run Form

A Person is required to create a login account first before using the service. This is a post-login service and existing users would need to login to their account using their credentials for filing the RUN form.

When an existing company wishes to change its name and is using RUN to reserve a new name CIN of the company is required. 

Validity of Reserve Name

An approved name is valid for a period of –

  • In case the name is being reserved for a new company – 20 days from the date of approval.
  • In case of change of name of the existing company – 60 days from the date of approval.

Attachments

It is not mandatory to attach relevant documents. It is required only when a name requires the approval of a Sectoral Regulator if applicable, as per the Companies (Incorporation) Rules, 2014.

Role of CRC

Name applications will be approved by Central Registration Centre (CRC) under Non-STP mode. The name applied for incorporation or change of name of the existing company will be subject to a comprehensive check and thereafter approval /rejection by the Central Registration (CRC), as the case may be, which shall be communicated by e-mail to the applicant.

Before filing the name through RUN WEB FORM, the Applicant should take into consideration Rule 8 of Companies (Incorporation Rule) 2014.

SPICE form followed by SPICE MOA and SPICE AOA

Process for incorporating a company through SPICE –

After the name reservation, the next step is to file company registration application in SPICE form, SPICE MOA AND SPICE AOA along with the other necessary documents such as DIR 2, INC 9, Declaration & NOC signed by the respective Directors and Property owner (Register office).

Note-While incorporating the company, if the proposed directors do not have DIN (Director Identification Number) then they can directly apply for DIN through SPICE and they do not need to file a separate application for the same.

Documents Required for SPICE FORM:

  1. Affidavit and declaration by the first subscribers and directors – Mandatory in all cases.
  2. Proof of office address.
  3. Copies of utility bills not older than two months.
  4. Copy of approval in case the proposed name contains any word(s) or expression(s) which requires approval from the Central Government.
  5. It is mandatory to attach the trademark registration certificate or trademark application copy if the proposed name is based on a registered trademark or the subject matter of an application is pending for registration under the Trademark Act, then.
  6. NOC from the owner of the place where the registered office is to be situated.
  7. Proof of identity and residential address of the subscribers and Directors.
  8. Applying for PAN /TAN will be compulsory for fresh incorporation applications through SPICE FORM.
  9. Affixing the DSC of the subscribers on the SPICE-MOAand SPICE-AOA which will reflect the date of signing automatically.
  10. Affidavit (INC-9) to be signed by each of the subscribers to the memorandum and from persons named as the first directors.

After completing the formalities and documentation process in all forms, it is required to upload the forms as a linked form on MCA through registered user id and by making the respective payment for the same.

Submission of Form SPICE FORM, SPICE-MOA, SPICE AOA and E-FORM AGILE on MCA

Certificate of Incorporation – Certificate of Incorporation is issued by the CRC along with CIN, PAN, and TAN of the company.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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