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Setting up Private Limited Company in India: A Comprehensive Guide

Good to know that you are making relevant strides with your business. You may already know about the various forms in which you can conduct your business. These include Sole Trader, Partnerships, Private Limited Companies and Public Limited Companies.

If you are a startup or want to take your business to a larger level in the future then incorporating a Private Limited is the best way to go. With increased digitization, the numerous hassles previously associated with registering a company are slowly falling off.

However, there is some mandatory compliances and documentation for each kind of company, and you should know about the same before proceeding to avoid any legal issues.

The introduction of INC-29 by the Ministry of Corporate Affairs (MCA) in May 2015 has simplified company registration to a great deal. The 5-in-1 form doesn’t replace the old procedure but reduces interaction at multiple levels thus saving you precious time.

The five forms clubbed into INC-29 include:

  • DIN Allotment
  • Name Reservation
  • Incorporation
  • PAN & TAN
  • ESIC Registration

Don’t panic if you have no clue what these terms mean. We will go through them in detail further in the article.

Before entailing the steps involved with registration, let us know why a Private Limited Company is essential for your business to advance smoothly.

Why do you need to form a Private Limited?

The Private Limited Company has been a proven model for business success in modern economies.

Essentially, a virtual entity is created in the name of the company. The ownership is divided into shareholders who hold private stock. These shareholders can operate the business themselves or appoint directors for the same.

Forming private limited company results in protection of personal assets, access to more resources, financial assistance, and greater tax cuts.

Here are some advantages associated with a Private Limited Company

#1 Limited Liability

If you are a sole trader or a partnership firm, then you face unlimited liability. This means that in the case of credit default, your personal assets can be put up to clear the same.

However, as a separate entity is created when registering a Private Limited, the liability of all shareholders is limited to their paid up capital. The company is treated as a unique single entity and is responsible for all its debts.

Unlimited liability can only arise in the case of shareholder or director fraud. If the credit default is proven to have been caused by director fraud then the personal liability for the same is unlimited.

#2 Tax Advantages

Private limited Companies do enjoy tax advantages. They pay standard corporate taxes on their profits and are often exempt from higher personal income tax rates.

Forming a company instead of continuing as a sole trader or sole proprietor opens the door to more tax-deductible costs and allowances redeemable against profits.

#3 Finance & Resources

Having a private limited company opens up your business to excellent funding and credit resources.

This is because interests of the lenders are more protected due to robust compliances. With adequate funding, your company can produce goods at a lower cost, thus increasing profits and customer satisfaction.

This allows you to make your business future secure.

#4 Your business becomes a going concern

There is a permanent succession in Private Limited Companies as they are unique entities. Shareholders and employees are perceived as agents of the company.

They do not affect company operations if they leave.

In the event of death or resignation, the Article of Association formed by the company allocates the share to the remaining members.

A company is only discontinued (called Winding up) through liquidation or similar means. Guaranteed succession not only benefits members but also secures jobs and resources for the community.

Essential Requirements for a Private Limited Company in India

Here is the primary list of requirements before we proceed to essential documentation:

PS: If something in this list doesn’t make sense to you then don’t worry, all will explain later on in the guide.

  • You must have a unique company name (can be verified by searching MCA website)
  • You must have a valid company address
  • It should have a minimum of two directors
  • It should have a minimum of 2 shareholders
  • A Memorandum of Association (MOA) that contains details of initial shareholders
  • An Article of Association (AOA) that contains the rules under which the company will operate.
  • INC-29 form

Make sure you have these documents ready before filing an application

Case 1: All Directors/Shareholders are Indian nationals: 

  • Scanned copy of PAN Card (Identity Proof)
  • Scanned copy of Voter’s ID/Passport/Driver’s License (Address Proof)
  • Scanned copies of latest bank statement/phone bill/electricity bill/gas bill
  • Scanned Passport sized photographs
  • Blank document with signature of directors 

PS: Any of the directors will have to attest the first three documents

Case 2: Any one of the directors/shareholders is an NRI 

  • Scanned copy of PAN Card (Identity Proof)
  • Scanned copy of Voter’s ID/Passport/Driver’s License (Address Proof)
  • Scanned copies of latest bank statement/phone bill/electricity bill/gas bill
  • Scanned Passport sized photographs
  • Blank document with signature of directors 

PS: All these documents for the NRI will have to Notarized if the NRI is currently in India or a non-commonwealth nation. If in a commonwealth nation, the documents will have to be apostilled by the Ministry of External Affairs. 

Case 3: When Directors/Shareholders are foreign nationals 

  • Scanned copy of Passport
  • Scanned copy of Address proof in the country of origin
  • Scanned copy of latest Bank Statement/Telephone Bill/Electricity Bill or Gas Bill
  • Scanned Passport sized photos
  • Director signatures on blank document

In this case, all the documents will have to be apostilled by the Ministry of External Affairs if the foreign national belongs to a non-commonwealth nation.

Documents required as Office Proof: 

  • Scanned copy of latest Bank Statement/Telephone Bill/Electricity Bill
  • Scanned copy of Notarized Rental Agreement in English
  • Scanned copy of latest rental receipt
  • In case the property is owned then a scanned copy of sale deed/property deed in English
  • Scanned copy of NOC from Property Owner

Now that you have an arsenal of documents ready, lets begin looking at each step of company registration.

I will advise you to not fill up and apply for registration yourself. It is better to consult with your Chartered Accountant and let them handle most of the processes.

I say this because CAs have the latest handle on such processes and their network allows for speedy and hassle free procedures.

Steps to set up an Indian Private Limited Company

#1 Obtaining a Digital Signature Certificate (DSC)

This is the first step you have to take. A DSC is a government-authorized certificate that companies use for a smooth electronic filing of documents and taxation.

The process takes 2-5 days to complete and will cost around INR 1,500.

  • Any of your directors has to get a Class-II DSC form from an MCA-authorized vendor.
  • There are six vendors currently including Tata Consultancy Services, e-Mudhra and n-Code.
  • Rates and fees can depend on from vendor to vendor.
  • The Class-II form needs to be duly filled and submitted with a self-attested copy of the PAN card

The DSC will later on help you in applying for online incorporation. Furthermore, it allows you to file your taxes online and provides a standard online verification for your company according to Government standards.

#2 Prepare and Complete INC-29

As soon as you have the DSC, you are eligible to file the INC-29. However, don’t feel ready yet. The form is 8 pages long and has to be filled very carefully.

It requires several pieces of information, documents and in some cases you need a signature by the Company Secretary.

The form must be filled under the supervision of a lawyer or an accountant as only one-resubmission attempt is allowed without any extra fee. Also, if you make errors in the first attempt then the subsequent process of applying for refunds and filling the forms again can be very hectic.

Applying for Directors Information Number (DIN)

A DIN is unique identification for the directory of any given company. It can be obtained for up to 3 directors through INC-29. If you have more directors, then separate applications will be sent.

The DIN is the number through which the MCA identifies directors of companies. Obtaining a DIN involves the submission of the following documents:

  • Scanned Passport-sized photo
  • Scanned copy of PAN Card/Passport/Voter ID/ Latest Utility Bill

Getting the company name approved

Did you know that the earlier registration process allowed you to submit 6 options for the company name?

However, the INC-29 only allows one option. Therefore, you must go to the MCA website and read the naming guidelines in order to get everything right. Make sure you follow these rules:

  • Your company name should be unique (No existing matches can be found)
  • There should be no registered trademark with the same name. You can check the same at ipindia.nic.com
  • However, if you can get an NOC from the trademark owner to use the name, you are good to go!
  • Avoid geographical references, adjectives, abbreviations and generic terms
  • If you have the words “bank”, “exchange” or “stock exchange” in your name, then you will need approval from RBI and SEBI
  • The second half of the name should specify the sector you’re in.

Once you’ve decided on a name, also describe the significance of the name in one or two sentences. This is important, as it will also go into the form.

MOA/AOA Essentials

Both need to be attached with the INC-29. You can get them properly drafted by the Company Secretary or your CA. However, they need to be duly signed by the Company Secretary.

The MOA contains the main objects of your business. You would also need to attach an affidavit from all subscribers through Form INC-9 (available on mca.gov.in). It goes for the AOA also.

Getting registered office verification

It is mandatory for all companies to have a registered office address. It is not quintessential for it to be a commercial space. The home of any director can also be mentioned in the address.

The details need to be provided with copies of the Rent Agreement and an NOC from the property owner. In the case of property that is owned, a copy of the sale deed needs to be given.

Appointment Letters and Declarations

The company secretary has to give a separate declaration wherein he will verify the authenticity of all declarations. The various attachments included are:

  • Letters of appointment for Directors and subsequent CEOs and Managers
  • Declaration by the first director in INC-9
  • Declaration by appointee director and managing director in Form DIR-2

It may seem like a daunting task to get the INC-29 duly and correctly filled. However, remember you do not need to take up everything yourself. Even after heavy research, you don’t have the necessary practice. Hence, let your experienced CA do it or get one before proceeding.

#3 Filing the INC-29

This generally takes a day. The costs associated are INR 2000, the authorized capital fee and stamp duty.

Once you have the INC-29 complete, make sure twice/thrice that it is filled correctly, all attachments are included and no mistakes have been made. This is important because incorporation is a delicate affair.

Multiple errors can result in the Registrar permanently disapproving your application.

Once the form is filed, you will be redirected to a payment gateway. The fee can vary depending on the authorized capital and stamp duty, which depends on your location. Stamp duty is similar in most states but costlier in Punjab and Kerala.

#4 Issuance of Certificate of Incorporation (COI)

After the above procedures are duly complete, the waiting game starts. The government promises delivery of the certificate in 2 days but trust me, it will take more time!

However, the filing of the single INC-29 form will grant you the incorporation certificate, which is, in itself, a huge step forward.

After you have received the COI, you are an official Company. You will get a company PAN number.

You have to remember that depending on the nature of business, there may be more compliances or documentation that needs to be done. For instance,

  • If you want to import/export goods, you will need to file for an Import Export Code
  • If you want to sell goods anywhere in the country then you will need to specify which ones and then apply for a Value Added Tax (VAT) number
  • If you are in the food business, then you will need to be verified by the concerned authorities. 

However, this is the basic process. Your CA can easily guide the sub-processes and extra compliances that are needed for your specific sector.

Now that your company is officially incorporated, you can do business seamlessly without worrying about any legal hassles and compliance issues

  • You can get company current accounts opened
  • You can start hiring people on payroll
  • Your transaction limits for national and overseas transactions will be relatively much higher
  • You can apply for Venture Capital and other forms of funding
  • You become eligible for bank overdrafts
  • You will see a spike in your credit ratings as your business grows

Well, you are an executive now… Have fun!

If you have any questions or doubts related to any process of company incorporation, fee free to discuss them in the comments.

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