India’s objective is to create a USD 5 trillion economy. To accomplish its economic objective, the Government of India (GOI) have initiated a host of major economic development programs such as Make in India & Self-Reliant India (Building indigenous manufacturing capabilities through policy impetus, fostering innovation, and offering credit support); Start-Up India (Encourage start-ups in India); Digital India (Transform India into an innovative and digitally empowered society through digital infrastructure, digitization of government service, and enhancing digital literacy.)
The government’s large-scale flagship programs alongside its ambitious economic objectives also entail that India is a land of opportunities. In addition to expansion in existing businesses, there is tremendous headspace for new enterprises, manufacturing ventures, technology start-ups, etc.
In April- June 2021, as per government data, India added 36,191 new companies. This is a steep jump from last year when 18,968 new companies were added during the same period. This happened despite the pandemic, thereby further underscoring how fertile the business environment in India is.
Before starting a company, however, it is vital to decide the type of company one wants to form and one should also decide the objectives of the company. Among the different types of companies, a private limited company is a popular and most preferred business structure. (To know more about other forms of company you can refer to another piece written by us- A comprehensive overview of company registration process in India.)
A business that has two or more owners and is actively seeking investment from other parties, a private limited company would be the best. The private limited company is a privately held entity held by a small group of members called shareholders and is registered for pre-defined objects. The private limited company has several options to raise funds through bank loans, angel investors, and venture capitalists. To get recognition as a company, the business entity needs to register with the Registrar of Companies under the Companies Act of 2013 in India. A Private Limited Company is a separate entity from its founders and has shareholders and directors and every individual is regarded as an employee of the company.
A private limited company offers limited liability and legal protection to its shareholders and can be registered with a minimum of two people and a maximum of 200 people. If the private limited company is registered with two members then both can be a director and shareholders in the company. The liability of a member of a Private Limited Company is limited to the share number held by them. This type of company can begin its operation only after getting the Incorporation Certificate that can be incorporated within 15 working days. Registration of the private limited company is vital because it provides authenticity to the proposed business structure and in long run also provides a great number of advantages. Entity registering as a Private Limited Company needs to fulfill the following registration procedure:
Step 1 - Obtain Director Identification Number (DIN) for the proposed Directors in the Company and obtain Digital Signature Certificate for one of the Directors of the Company.
Step 2 - The promoters should select one or more suitable names that should not be similar or identical to any registered company or trademark, and the name should not be prohibited under the Emblems and names Act, 1950. The registrar will review and approve one of the names proposed by the promoters that may take 3 to 5 working days.
Step 3 - After approval of the name of the company, promoters will require to apply along with prescribed fees and documents like Articles of Association, Memorandum of Association, and Declaration from Directors, and Affidavits of the Directors. Memorandum of Association contains the charter of the company while Articles of Association represents the internal rules and regulations of the company. The company also needs to provide information regarding its registered office within 15 days of registration or during the filing of incorporation documents.
Step 4 - According to the Companies Act 2013, a subscriber should sign and should have at least one share of the company. Every subscriber should sign the memorandum in front of one witness and clearly state their address, personal detail, occupation, number of shares subscribed, and nature of shares, etc.
Step 5 - After submitting the above-mentioned documents and necessary fees payment, the company registration certificate will be issued by the Registrar of Companies. After incorporation, the company becomes a separate entity from its members.
Business entity looking to register as a Private Limited Company should meet the following basic requirements:
The entire process of registering a Private Limited Company comprises of approval of the company’s name as well as Director Identification Number that takes around 10 working days. Registering a company has now become a fast process as all documents are attached in a single application form that is submitted to the Ministry of Corporate Affairs.
Separate Legal Existence - A separate legal entity is created in front of the law once the private limited company registration is done. The company simply needs to open a bank account to operate in its name and to own assets and contract with parties.
Separate Management and Ownership - The company has separate ownership and management and hence both can focus on their potential works. The responsibility to operate and run the company is assigned by the shareholders.
Owners have Limited Liability - The company's debts or obligation does not create a charge over the personal assets of the owner and their liability is only limited to their subscribed capital.
Fund Raising is Easy - The registration process of a private limited company is quite stringent that makes such a company credible among others. This makes fundraising and borrowing easier and the organization itself can raise funds in the form of ESOP, private equity, etc.