India is becoming a hub of startups since Hon'ble Prime Minister Shri Narendra Modi brought out the scheme of Startup India, Stand Up India, Make in India, Digital India amongst lot other facilitations in the course of increase in the ease of doing business in India. Company Registration in India has seen massive change at the MCA website where earlier it was done by respective Registrar of Company (ROC) of each State to now changing it to Central Registration System (CRC) that cares of all private limited company registration anywhere in India.

Starting a private company is an exciting journey for any startup founder, and incorporating it is one of the easiest task if you have the right set of professional guiding you through the way. As a first time entrepreneur, it can feel overwhelming with all the legal compliances and paperwork to carry out the process of company registration. There are many perks of registering a company as it gives you the protection of limited liability, access to funding from Angel Investors/ VC Firms, and the corporate image you need to grow. In this article, GenZCFO will take you through the basics of incorporating a private limited company, sharing tips and insights to help you understand the process smoothly. 

Definition and Characteristics of a Private Company

Before going through the incorporation part, let us first understand about the meaning of private company.

Under Section 2(68) of The Companies Act, 2013, a private company is defined as a company that:

• Has a minimum paid-up share capital as prescribed, although there is currently no minimum requirement mandated by the act.
• Restricts the right of members to transfer shares.
• Limits the number of its members to 200, excluding employees and former employees who became members while in employment.
• Prohibits any invitation to the public to subscribe to any securities of the company.

Key Features of a Private Company:

• Limited Liability: Shareholders' liabilities are limited to the amount unpaid on their shares.
• Separate Legal Entity: A private company is considered a separate legal entity from its owners.
• Perpetual Succession: The company continues to exist regardless of changes in management or ownership.
• Less Stringent Compliance: Private companies are subject to less stringent regulatory requirements compared to public companies.

Benefits of Incorporating a Private Company

Limited Liability Protection: Incorporation offers protection to the personal assets of shareholders. In case of financial distress, creditors can only claim against the company’s assets, unlike Sole Propriotership and Partnership Firm, the can not claim the personal assets of the shareholders.

Separate Legal Entity: A private company is a separate legal entity from its owners, this allows it to own property, incur liabilities, enter into legal agreements on its own and sue or be sued in its own name.

Easier Access to Funding: Private companies can raise capital through private placements or by issuing shares to specific investors without going public.

Tax Benefits: Certain tax advantages are available to incorporated companies, such as deductions on business expenses and favorable tax rates on retained earnings. If you wish to have a excellent tax planning for your company then you can enjoy the best Tax Consultancy Services offered by the team of experts at GenZCFO.

Pre-Incorporation Steps

Before incorporating your private company, you need  to undertake some crucial preliminary steps:

Preliminary Planning and Decision-Making: Determine the business structure, assess the benefits of incorporation, and plan the business operations. Decide on the number of directors and shareholders, and prepare for initial capital requirements.

Selection of Business Name: The business name should be unique and must comply with the naming guidelines under The Companies Act, 2013. The name should not resemble the name of any existing company or trademark registration.

Digital Signature Certificate (DSC): A DSC is required for electronic filing of forms with the Ministry of Corporate Affairs (MCA). All proposed directors must obtain their DSC from authorized certifying agencies.

Director Identification Number (DIN): As per Section 153 of the Act, every individual intending to be appointed as a director of a company must obtain a DIN by applying to the central government.

Steps for Incorporation of a Private Company

The incorporation of a private company involves several key steps, which are outlined below with references to relevant sections of The Companies Act, 2013:

Step 1: Choosing the Company Name (Section 4)

• Apply for name approval through the Spice Part A service on the MCA portal.
• The chosen name must be unique, not misleading, and should reflect the company’s activities.
• Ensure that the proposed name complies with the naming guidelines under Rule 8 of the Companies (Incorporation) Rules, 2014.

Step 2: Drafting the Memorandum of Association (MOA) and Articles of Association (AOA)

• Memorandum of Association (Section 4): The eMOA outlines the scope of operations and the company’s objectives. It includes clauses such as the name, registered office, object, liability, capital, and subscription clauses.
• Articles of Association (Section 5): The eAOA specifies the rules and regulations governing the internal management of the company. It includes details on the powers and duties of directors, voting rights of shareholders, and procedures for conducting meetings.

Step 3: Filing of Incorporation Forms

• INC-32 (SPICe+): The Simplified Proforma for Incorporating Company Electronically Plus (SPICe+) form is used for the incorporation of a company. It integrates multiple services including name reservation, incorporation, DIN allotment, PAN, TAN, GSTIN, ESIC, EPFO, and opening a bank account.
• Submit the SPICe+ form along with required documents, including MOA, AOA, and affidavits from directors, to the MCA.

Step 4: Payment of Fees

• Pay the applicable fees for incorporation, which vary depending on the authorized capital of the company. Fees can be paid online through the MCA portal.

Step 5: Issuance of Certificate of Incorporation (Section 7)

• Upon verification and approval of the submitted documents, the Registrar of Companies (RoC) issues the Certificate of Incorporation, signifying the legal existence of the company.
• The Certificate of Incorporation includes the unique Corporate Identification Number (CIN) and acts as conclusive evidence of the company's formation.

Detailed Explanation of Incorporation Steps

Name Approval (Section 4)

• The company’s name must be unique and should not infringe on existing trademarks or closely resemble the name of another company.
• Submit an application for name reservation through the RUN service or as part of the SPICe+ form. Up to two names can be proposed, with one name being approved.

Memorandum of Association (Section 4)

• The MOA serves as the company’s charter, outlining its purpose and scope. It is crucial to clearly define the main objects and ancillary objects of the company to avoid any operational ambiguity.

Articles of Association (Section 5)

• The AOA defines the internal rules and regulations of the company, including the powers and duties of directors and the manner in which the company will conduct its business.

Incorporation Form INC-32 (SPICe+)

• SPICe+ simplifies the incorporation process by integrating multiple services into a single form. This includes applying for DINs, reserving the company name, and registering for various statutory licenses and numbers.

Application for PAN and TAN

• As part of the incorporation process, the company must also apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). These are mandatory for all companies incorporated in India.

Required Documents for Incorporation

The following documents are required for the incorporation of a private company:

• Identity Proof: PAN card of all directors and shareholders.
• Address Proof: Passport, driving license, or voter ID for all directors and shareholders.
• Proof of Registered Office: Recent utility bill (electricity, water, gas) and a NOC from the owner of the premises.
• Consent to Act as Director (Form DIR-2): Consent letter from each proposed director.
• Declaration by Directors and Subscribers (INC-9): A declaration confirming compliance with the incorporation requirements.

Post-Incorporation Compliance

After incorporation, a private company must comply with several statutory requirements:

Obtaining PAN, TAN, and Bank Account: The company must obtain its PAN and TAN from the Income Tax Department and open a bank account in the company’s name.

Compliance with Statutory Requirements: Maintain statutory registers, hold board meetings, and file annual returns with the RoC as required under Sections 92 and 137 of The Companies Act, 2013.

Filing of Annual Returns: File annual returns and financial statements with the RoC. Compliance with these requirements ensures the company remains in good standing with regulatory authorities.

Maintenance of Statutory Registers: Maintain registers of members, directors, and charges as mandated under The Companies Act, 2013.

Common Mistakes and How to Avoid Them

Incorporating a company involves several legal formalities and documentation. Common mistakes include:

• Choosing an inappropriate company name: Ensure the name complies with legal requirements and does not infringe on trademarks.
• Incomplete or incorrect filings: Double-check all forms and documents before submission to avoid delays or rejections.
• Non-compliance with post-incorporation requirements: Stay vigilant about compliance to avoid penalties or legal issues.

Tips for a Smooth Incorporation Process:

• Engage a professional, such as a Company Secretary or Chartered Accountant, to guide you through the incorporation process.
• Ensure that all directors and shareholders are aware of their roles and responsibilities within the company.
• Keep up-to-date with changes in company law and compliance requirements to ensure ongoing compliance.

Frequently Asked Questions (FAQs)

1. How long does the incorporation process take?
The incorporation process typically takes about 7-10 working days, depending on the RoC’s processing times and the accuracy of the submitted documents.

2. What is the minimum number of directors required?
A private company must have at least 2 directors as per Section 149(1)(a) of The Companies Act, 2013.

3. Can one person incorporate a private company?
No, a private company needs at least two directors and two shareholders, but a One Person Company (OPC) is an alternative.

4. What are the costs involved in incorporating a private company?
Costs vary based on factors like professional fees, government fees, and stamp duty fees.

5. Can a foreign national be a director in a private company?
Yes, a foreign national can be a director, but at least one director must be an Indian resident.

If you are looking for company incorporation, you have come to the right place as we offer hasselfree services in the end-to-end process. please feel free to contact us as we have a team of Charterd Accountants, Company Secretaries and Lawyers who will make the process of company registration online for you including providing the right consultancy as and when you have it, not just during the process of company registration but essentially even after the receiving of certificate of incorporation starting with the post-incorporation compliance like filing of INC-20A (Declaration for commencement of business, first auditor appointment within 30 days, eStampting of share certificates as per states, holding first board meeting and other important compliances as per the Companies Act, 2013.