As we all know that establishing a business legally is a vital phase for any businessman or entrepreneur, because in case there are defaults with respect to legal requirement then one might be liable for huge sum of fine. Thus, the businessman has to comply with the legalities while setting up his business or company. Incorporation of a private limited company is not as difficult or complicated these days. It usually takes 14 to 20 days for creation of a company if all the procedures are followed accordingly.
It is usually stated that setting up a private limited company is one of the best ways to start your business as well as enhance it, as this type of company offers limited liability for its shareholders with certain restrictions placed on their ownership and the company is managed by Board of Directors, so that there is no issue regarding the management and ownership of the Company. In case of Limited Liability Partnership, there is no such differentiation and the partners own and manage the business simultaneously.
It is often questioned why should one choose to register their company, but there are perks that a registered company may offer, rather than an unregistered one. First and foremost, it increases the authenticity of your business and helps create a different corporate entity. This helps the directors in shielding from their personal liabilities and protects from other risks also. It gives you better reach with the customers and credibility in eyes of bank. One might have reliable investors easily. The major reason is that it offers greater capital contribution and stability to the business and expands the potential of the company to grow big.
Essentials Before Registration –
There are certain requirements as stated under Companies Act 2013, before incorporating a company. They are-
- Two directors- a private limited company must have atleast 2 directors and maximum, they can have 15 directors and among these directors, one should be resident of India (should have resided for more than 182 days in India).
- Exclusive name- the name of the company and business should be unique and shouldn’t match with the existing names of the companies.
- Minimum capital- a company must have a capital investment of atleast Rs 1 lakh.
- Registered office- the company must have registered office and it is not necessary to have commercial space, it can also be a rented home as long as the NOC is obtained from the landlord.
Thus, these were some of the essentials to be kept in mind before opting for registration of company.
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Steps to Form a Private Limited Company –
The procedure for incorporation of a Private Limited Company is as follows:
- Step 1- Reserve name of the Company under RUN
The company should first log into the portal of MCA (Ministry of Corporate Affairs) and get access to the web-form RUN (Reserve unique Number). The applicant has to enter the requisite credentials on the form along with their suggested names for the registration of Company. There are 2 columns given for choosing the name of the company in the preferential order. In case both the names are rejected by Registrar, another chance is given to provide with 2 other different names and if this re-submission is also rejected by the Registrar then a fresh application has to be made from the portal again.
The name allotted to the particular application has to be reserved for the specific applicant for a period of 20 days starting from date of Name Approval Letter, all the necessary steps need to be done in this stipulated time to complete the registration of the Company.
There is even another method available for Name Registration through Spice-32 Form, but the Form allows only one name in the suggestion and if it matches with some other company, then the Form gets rejected and the whole process has to be repeated. Thus, the web-form RUN is preferred more for name registration.
- Step 2- Procure Digital Signature Certificate
The registration requires DSC (Digital Signature Certificate) that allows application filed with MCA signed digitally. The DSC is done by the Director and shareholder of the proposed company so that it enables filing of the other required e-forms during registration process. Certain documents such as passport size photograph, PAN card and address proof is required to obtain DSC. DSC is also necessary for filing the application of DIN of the Directors and further DSC of the shareholder is also required to file MOA and AOA. The price of DSC should range from Rs 1500-2000.
- Step 3- Apply for DIN (Director Identification Number)-
The documents required from each Director to apply for DIN are as follows-
- Digital Signature
- PAN Card
- 1 photograph
- Address Proof (Passport/ Election Card/ Ration Card/ Electricity Bill/ Telephone Bill/ Aadhar Card)
- Affidavit as per DIR 4
After arranging these documents, fill the Form DIR-3 and make all these attachments. The documents should not be older than 2 months. Then apply for DIN in form DIR 3 and DIN will be allotted at same time.
- Step 4- Drafting of MOA, AOA and other documents
Memorandum of Association and Articles of Association are the heart and brain of a Company as one state the scope of the operation and the other defines how these operations need to be carried out. Along with the MOA and AOA the application for registration of Private Company should be attached with the following documents:
- NOC from owner of registered office address and a Utility Bill
- If the premise is rented, then a Rental agreement with registered office owner
- Consent to act as Director of the Company under form DIR-2
- Declaration by the first subscriber(s) and Director(s) in form DIR-2
- Certified true copy of the self-attested Identity proof of the first subscriber(s) and Director(s).
- Certified true copy of the self-attested Address proof of the first subscriber(s) and Director(s).
- Step 5- Application for Registration
Once all these documents are prepared, the application of Private Company has to be made in e-form SPICe along with SPICe MOA and AOA. The same form for incorporation of the company is combined form for allotment of DIN, PAN and TAN. As per the latest amendments, the government fee for company registration for small companies having capital upto 15 lakh is waived off, however Stamp Duty is payable to the respective state authorities.
Once the verification of the application and documents submitted is done, the concerned Registrar of Companies may grant the Certificate of incorporation (COI) which is a legitimate proof of the existence of the Company. The Certificate shall have the date of incorporation, Company Identification Number (CIN), PAN with sign and seal of Registrar and the DIN is also allotted along with approval of registration. INC-21 will be required to be filed within 180 days of receiving Certificate of Incorporation to commence its business.
Thus, these are the steps and documents required for incorporation of a private limited Company as per the Companies Act, 2013.
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Compliances to be followed –
While managing the day-to-day operations of the business, one has to also comply to all the corporate laws which can be a little taxing for the directors or entrepreneur. Thus, it is suggested that the professional should be appointed for understanding and being up to date with such compliances so that it doesn’t amount to any future penalties.
Lately, the government has been stringent about their compliances and strike off around 2 lakh companies and disqualified more than 3 lakh companies for non-compliance of various provisions of the Companies Act 2013, as it was observed that there were various tricks applied by companies for evading taxes. Thus, there are certain compliances which need to be followed by the company on regular basis such as reporting of financial results, reporting of changes in management, auditing of accounts etc. The compliances mentioned under Company Law are divided into 2 parts, Mandatory compliances and event-based compliances. Here, we are going to discuss the mandatory compliances. They are-
- Every company should get its name, registered address of office, CIN, telephone and email id printed on their business letters, bill invoices, letters etc
- The first board meeting of directors should be conducted within 30 days of the incorporation of Company, and notice regarding the meeting should be send to every director atleast 7 days before the meeting.
- The company should conduct minimum 4 Board Meetings annually with not more than 120 days gap between the 2 meetings, and in case of small companies 2 board meetings shall be sufficient.
- The company shall issue share certificate to their subscribers of memorandum within 60 days of incorporation
- The director should file disclosure of interest in every first meeting where he participates as director, first meeting of Board in every financial year, whenever there is change in disclosures. The disclosure shall be made in MBP-1 form (shall be kept as record).
- In case of alteration in MOA and AOA, it has to be filed with Registrar together with the copy of altered Articles, notice of meeting and Special Resolution (SR) within 30 days of passing the resolution.
- Every company shall maintain the following registers in the specified given format.
- Register of Member in MGT-1 Form
- Register of other security holders residing outside India MGT-3 Form
- Register of Transfer and Transmission of Shares SH-6
- Register of Charge CHS-7
- Index of the registers
- Register of Directors and Key Managerial Personnel in prescribed format
- The copy of every resolution (with explanatory statement) or Agreement for specific matters has to be filed with Registrar of Companies in Form MGT-14 within 30 days.
- Minutes of every general meeting has to be prepared. The creditors, board and committee shall prepare and keep it within 30 days of conclusion of the meeting. All the appointments made in meeting shall be included in the minutes, the entire minutes shall be recorded in the Minutes Book along with date of such entry.
- The person appointed as Director shall provide his consent in Form DIR-2 and such consent has to be filed by Company with ROC in Form DIR-2 within 30 days of appointment.
- The qualification for appointment of a Director, declaration from director at time of appointment or reappointment in Form DIR-8 has to be made, and annual disclosure from Director has to be taken
- A person shall not be director in more than 20 companies and maximum number of public companies can be 10.
- In case, the director resigns Director shall intimate his resignation to the company which has to be filed by Company with ROC in Form DIR-12 in 30 days. The same shall be put up on company’s website and its Director’s report.
- Certain meetings can be convened at shorter notice period also for urgent matters, but it should have consent of not less than 95% of members entitled to vote there at.
- The quorum shall be one-third or two directors whichever is higher and directors participating through Video-conferencing shall be counted for purpose of quorum.
- The first auditor of the company shall be appointed by BOD within 30 days from their incorporation, who will be holding the office till the conclusion of 1st Annual General Meeting and in case of first auditor, filing of ADT-1 is not compulsory.
- The BOD shall appoint the subsequent auditor in 1st AGM who will be holding the office till the conclusion of 6th AGM and shall also inform the ROC by filing the ADT-1. The responsibility to file Form ADT-1 is that of Company within 15 days from his date of appointment. The shareholders shall ratify the appointment of Auditor in every AGM, but no need to file ADT-1
- If there is casual vacancy for Auditor’s post due to his resignation, then it shall be filed within 30 days of BOD Meeting, subject to approval in general meeting. Any auditor appointed in a casual vacancy shall be holding the office till the conclusion of next AGM.
- The auditor can file with the company a resignation letter stating its reason and file in Form ADT-3 with the registrar within 30 days from date of resignation. ADT-3 can be filed only if ADT-1 of the relevant auditor is filed before.
- Every company has to hold an AGM on or before 30th September of every financial year on a day that is not a public holiday and either at the registered office of the company or within the city, town or village where the registered office is located.
- Every company has to file their financial statements within 30 days of its AGM with ROC in E-Form AOC-4. The same has to be signed by one director and authorised by CA/CS/Cost Accountant in practise.
- Every company has to file its Annual Return with ROC within 60 days of its AGM in E-form MGT-7.
- Director’s Report is to be filed consisting of all the information required for small company u/s 134 within 30 days of AGM along with Form AOC-4, and it should be signed by the Chairperson authorized by the Board.
- In case of foreign company, they are required to file Annual accounts (consolidated financial statements/ global accounts) along with the list of all principal places of business in India within 6 months of close of the Financial year. They also have to file annual return in e-form FC-4 within 60 days from close of financial year.
Thus, from the above it can be inferred that creation of company can be done easily with the help of a legal professional within 15-20 days, given all the documents are in place. The above procedure gives detailed steps regarding the incorporation of company in easy manner. But once, the company has been incorporated and the business begins, there are various legalities and compliances mentioned under the Companies Act 2013 which need to be taken care of, especially if the company is operating at big scale or else it can attract penalties for violation of such compliances. Hence, these were some of the essential things to keep in mind for registration of private limited company.
-This Article has been authored by Rhea Banerjee