How to start a private limited company

Are you planning to start your company? Are you fascinated with the idea of running a business under your ownership? A positive answer to these questions must have brought you here. We are going to cover the important aspects that “how to start a private limited company” in this blog. We will talk about every side of a private company in this blog.

What is a private company?

A company that is owned by private stakeholders is known as a private company. The liability of the members of a private company is limited. It is limited by the number of shares held by the member.

A shareholder cannot be held liable more than the value of shares he owns. The maximum number of shareholders a private company can have is 200 and restricts them from trading shares publicly.

What does Section 2(68) say?

“Acompany having a minimum paid-up share capital as may be prescribed, and which by its articles-

1. Restricts the right to transfer its shares
2. Except in case of One Person Company, limits the number of its members to two hundred;
3. Prohibits any invitation to the public to subscribe to any securities of the company.

Characteristics of Private Company

Here is a list of features of a private company. After getting acquainted with these features, you will understand what is a private company.

• Membership– If you are planning to open your company, remember that you will require at least two shareholders to start the company. You would also require two directors to run the company. The maximum number of members that can hold a share in the company is 200.
  
• Limited Liability– I won’t mind it labeled as the biggest advantage of having a private company. You have limited liability. The personal assets of the shareholder are not at risk. They cannot be held liable beyond the amount of their share in the company.
  
• Separate Legal Entity– The members may die, but the company goes on. Yes, you heard it right. The company has a separate existence and even if the members of the company, die, become insolvent, or bankrupt the company will still exist in the eyes of the law.
  
• Minimum Paid-up Capital– A private company is expected to maintain a minimum paid-up capital of Rs. 1 lakh. It may vary as per the guidelines of MCA.

You must have got an idea about what is a private company and how it works. The next question arising in your mind must be what are the benefits of having a private company or why should I have a private company. So, here we go with the answer.

Why a private company?

• Limited liability– We already labeled this feature of a private company as the biggest advantage. This prompts people to invest more in private companies. The members of the company are not at the risk of losing their personal property.
  
• Ownership– The owners of the private company move freely. They have control over the shares and every matter of the company. They can trade for a share of the company anytime they want.
  
• A limited number of owners– Usually, public companies have a lot of shareholders. And the say of more than required spoils the matter. The private company is free from such chaos. A private company can run with just two members and it is dependent on the members whether they want more members or not. Generally, the number of shareholders is less in private companies.
  
• The company exists– A company is a separate legal entity. It continues to exist even after the members die. This is one of the best features of a private company.
  
  Starting a private limited company may seem challenging in the beginning, but it is worth the pain. Several private limited companies have initiated at small levels but are doing exceptionally well.
  
  Mother Dairy Fruit& Vegetable Private Limited is one of those companies. It was founded in the year 1974 and is headquartered in Noida. Earlier, it restricted supplies to Delhi NCR but later spread feet to other cities.
  
  It offers a wide range of products including ghee, milk, pickles, and many more. It is counted as one of the top dairy products companies in India.

So, now you must have got convinced as to why you should go for a private company. The next point of concern is the requirements. What would you require to start a private company and how to start a private limited company?

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Requirements of a Private Company

Several requirements are expected to meet when you are starting a private company.

Members

A private company required a minimum of two directors and two members and a maximum of 200 members. This is a statutory requirement as mandated by the Companies Act 2013.

Following requirements should be met by the directors-

• Each director should have a Director Identification Number given by the Municipal of Corporate Affairs.
• One of the directors must be a resident of India.

Name of the Company

It sounds easier to decide the name of the company. But it is not. Choosing the name of the company is one of the most baffling tasks. You need to be cautious while selecting the name of your company. These three aspects should be covered while deciding the name of the company-

• Main Name
• Activity to be carried out
• Mention of ‘Private Limited Company at the end

Many-a-times it happens, the name you choose is not available. For those purposes, you should send 5-6 names for approval to the Registrar of Company (ROC). The name you sent should not resemble any other company’s name.

Registered Office Address-After the registration of the company, the permanent address of the registered office must be filed with the registrar of the company.

Documents

A company must obtain a digital signature certificate for the electronic submission of documents. It is used to verify the authenticity of the documents. Certifications are necessary for the companies that hire professionals for the work.

Documents required to register a private limited company-

After getting apprised with the requirements of the company, here is a list of documents required to register-

• ID Proof- PAN Card, passport of Indian and Foreign Directors respectively.
• No Objection Certificate from the property owner
• Notarized rental agreement
• Residence proofs- Bank statement or electricity bill
• Address proofs- Ration Card or Aadhar card or driver’s license or voter ID
• A copy of the sale deed or property deed

Heading towards the main concern behind this blog– How to register a private company. Here is a stepwise guide to getting your private company registered.

Step 1- Obtain Digital Signature Certificate

A private limited company must obtain a digital signature certificate. The process of obtaining a digital signature certificate is online. The cost varies based on certifying agency. DSC is necessary for all subscribers.

You must obtain a digital signature certificate from a certified government agency. You must obtain class 2 or class 3 category of DSC. In class 3 the person is expected to present himself before registering authority to prove their identity.

Step 2- Apply for Director Identification Number

Director Identification Number is an identification number for a director. The person who wishes to become a director of the company must obtain DIN. There are different ways to obtain DIN-

• Option 1– File from DIN 3. This form is available only for existing companies. It simply means with effect from January 2013, the company is not expected to file for DIR-3 separately. The basic details required here include PAN, Aadhar card, etc.
  
• Option 2– By filing SPICEs, DIN can be obtained by the directors. Under this process, the minimum requirement for the number of directors increases to 3.

Step 3- Name Approval

The next step is to get approval for the name you decided. While deciding the name of your private company, you should keep in mind that it should not hold any close resemblance to the name of existing companies.

A private company should include a “private limited company” along with the main name and the work it does. It is advisable to send 5-6 names to the Registrar of Company for approval.

Step 4- Form SPICe

MCA has introduced form SPICefor incorporating a company electronically. The list of purposes served by the single application includes-

• Application for allotment of DIN
• Reservation of company name
• Incorporation of a new company
• Application for PAN and TAN

Step 5- e-MOA and e-AOA

These forms have been introduced to ease the process of registration of the company. E-MOA refers to electronic Memorandum of the association while e-AOA refers to electronic articles of association.

Article of association contains the internal rules and regulations of the company. It may vary based on the type of company. While the Memorandum of association is the charter of the company.

Step 6- Application of TAN and PAN

The next step is to apply for TAN and PAN application. By using form 49A for PAN and 49B for TAN you can apply for them. After the submission of the SPICe form, the system will generate these forms.

You are required to download it, add a digital signature, and upload the forms on the MCA portal. When MCA will approve the registration, you will be given a CIN (Company Identity Number).

By following these steps, you can get your private company registered. The whole process gets completed in around 7 business days. However, the process of registration of the company has been fastened.

A brief description of forms of company registration–

• Partnership firm registration
• Proprietorship firm registration
• Limited Liability Partnership Registration
• One Person Company
• NGO registration

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As you are apprised with every aspect of how to start a private limited company, the next thing is how are you planning to grow your firm.

You can use both digital and traditional techniques of marketing to promote your business. In this era of the internet, where the whole world is online, choosing the right agency and technique is not easy.

We at traffic tail, are here to guide you with every aspect associated with how to start a private limited company and also starting and growing your company online.

Frequently Asked Questions

Ques. 1- What are the requirements for opening a private company?

Ans. The list of requirements includes-

• DIN
• Copy of PAN card of directors. Passport for NRI subscribers.
• Two directors and two shareholders
• The maximum number of shareholders is 200.

Ques. 2- What are MOA and AOA?

Ans. AOA refers to an Article of Association, that contains the internal rules and regulations of the company. While MOA refers to a Memorandum of Association and defines the constitution, powers and object of the company.

Ques. 3- Is there a limit on the number of directors that can use SPICe INC 32 for obtaining DIN?

Ans. A maximum of three directors can use the form for applying for Director Identification Number.

Ques. 4 Are PAN and Aadhar mandatory?

Ans. No, PAN and Aadhar are not mandatory for incorporation of the company. As per the rules updated on 27^th July 2016 has relaxed the mandatory attachment of PAN and Aadhar.