Article by Drishti Saigal.
After a startup manages to get a basic amount of funding, it tries to incorporate itself into a proper business legal structure.
India allows for several business formats such as sole-propreitorships, partnerships, Limited Liability Partnerships and Companies.
Of these all, LLPs are mainly used by businesses pursuing professional services, while most startups opt for private limited companies and one person companies to begin with.
This article shows how you can register a private limited and one person company in India, step-by-step.
Unique Features of Private Limited and One Person Companies in India
Section 2(68) of the Companies Act, 2013 defines a private company to mean a company –
- Which has a minimum paid up share capital of rupees one lakh or such a higher amount as may be prescribed in the rules created under the Companies Act, 2013,
- Whose shares are not as freely transferable as in a public limited company,
- There is a maximum limit on the total number of members to 200.
You need at least 2 members to form a private company and one member in-case of a One-Person Company.
It is interesting to note that for all reasons and purposes, a One-Person Company is a special type of private company wherein only one member can form a company.
You need to appoint at least two directors for a private limited company, and only one director for a one person company and the maximum can depend upon the Articles of Association of your company.
In case of a Private Company whose shares can not be issued freely to the public, shares are not freely transferable. This means that you cannot transfer shares freely to anyone you want like in the case of public companies.
The restriction is often denoted in the articles of association and you often have to take permission from the company before parting with or selling your shares to someone else via a resolution.
A common feature of all private companies is that at the end of the name of the company, the word “private limited” or “Pvt. Ltd.” must be used.
Books of Accounts are mandatorily required to be preserved for a period of 8 years in a Private Ltd Company.
You need a certification of Incorporation for the formation of a Private Ltd Company and in this guide we will show you how to get just that.
Advantages of Incorporation of a Private Company in India
The liability of the shareholders of a private limited company is limited up to the extent of the contribution made by the shareholders, as is mentioned in the capital clause of the memorandum of association of the company.
A private company has a separate legal identity so it is responsible for the management of itself to its Debtors, Creditors and Shareholders. It is the sole person responsible for the governance of its Assets, and Liabilities except in the case of fraud.
Registration of a private company helps entrepreneurs to raise funds through equity via angel funding and venture capitalist investors. This also improves its working capital management while at the same time providing optimal business financing solutions.
A company has a perpetual succession; it means that once a company is incorporated then the life of the company does not depend upon the existence of its members.
- Related Article: 70 Mistakes that Can Sabotage Your Startup
Procedure of Incorporation or Registration of a Private Company
There are a lot of forms involved for the registration of a private company Here’s an exhaustive list of all the forms that you are going to need.
Firstly you need to obtain a DSC (Digital Signature Certificate) and the directors need to obtain a DIN (Director’s Identification number).
A digital signature certificate is mandatory for all your company’s interactions with the registrar and the Ministry of Corporate Affairs. It is recommended that you get yourself a Class 3 digital signature certificate straight off the bat.
Your company directors also require one for acting on behalf of your company as well as to acquire a director’s identification number, which is a must have for any individual acting as a director on the board of the company.
We also mentioned it in our post on “How to Appoint Directors in Indian Companies.” If you don’t have any pre-existing director, check the article out for more details on this step.
Why do you need a digital signature certificate?
- DSC is required for the registration of the company and other applications with the Ministry of Corporate affairs.
- It is issued by the Certifying Authority and it is valid for 1 or 2 years.
- The shareholders are required to file e-MOA and e-AOA by affixing DSC’S.
How to get a digital signature certificate?
The documents required for obtaining a Digital Signature Certificate are –
- Passport size photo of the Applicant.
- Self-attested Address proof and PAN card of the applicant.
We have an entire post on digital signature certificates in India, so make sure to check it out.
How to Get the Director’s Identification Number for Your Company Directors in India
The next step is to apply for the DIN (Director’s Identification number) which is a Unique Identification number that all company directors must have. It is issued by the Ministry of Corporate Affairs.
It is mandatory to have a DIN to be appointed as a director in the company and the same can be used for appointment in any other company or for appointment as a designated partner in a Limited Liability Partnership.
To apply for a DIN to act as a director in an existing company, you have to file the e-form DIR-3 along with your PAN card, Aadhaar card, and an Address proof.
However since you are trying to incorporate your company, you need to file for a DIN via the SPICe form (INC-32) for up to 3 directors.
If the applicant wants to Incorporate with more than 3 Directors and more than 3 persons don’t have a DIN then in such a situation applicant has to Incorporate the company with 2 directors (for a private limited company and one director for a one person company) and later on after Incorporation, he can appoint new directors.
You just need to ensure that you inform the RoC within 1 month of receipt of your DINs for your director(s).
Getting Ready for Incorporating Your Private Limited Company or One Person Company in India – The Basic Legalities Involved
Section 7 of the Companies Act, 2013 lays down the Procedure for the Incorporation of a company. A minimum of two persons can incorporate a company, with or without a limited liability to form a private limited company.
However, even one person can form a One Person Company. The guidelines are as follows:-
You need to subscribe your name to the Memorandum and Article of Association of the proposed company and submit an application to the ROC (Registrar of Companies) of the state in which the registered office of the company is to be situated.
Related Article: All about Key Managerial Personnel in Indian Companies
Check if the Proposed Name for Your Company is Available
You can use this tool to check for the availability for your company name. If it is, also ensure that the name does not resemble any registered trademark or else you could get sued for trademark infringement.
After that, you need to fill an e-form INC-1 with the Ministry of Corporate Affairs to file for reservation of the proposed name for your Private Limited Company or One Person Company.
Just note that it should end with suffix “Pvt. Ltd”. You can also make a fresh application in case the proposed name is rejected. However you get that chance just once, and if you mess it up again, you will need to file a fresh INC-1 form and pay the entire fees again.
What to do if Your Proposed Name for Your Private Limited Company or One Person Company is Rejected
Previously a company could be incorporated via the RUN (Reserve Unique name) form. It only gave one chance for applying and in case of rejection of the name due to any similarity of the name with a registered company, LLP, Trademark or due to non-adherence of Companies Rules, there used to be no second chances.
In case of rejection, an applicant had to file another RUN form with the prescribed fees.
DSC and DIN is not required for filing a RUN form; only an account with the Ministry of Corporate Affairs website is mandatory.
However, with effect from March 23, 2018, Ministry has decided to permit two proposed Names and one re-submission (RSUB) while reserving Unique Names for the Companies.
You can apply for a proposed name via SPICe (Simplified Proforma for Incorporating Company Electronically) through INC-32 but only one name can be applied through this, which is similar to the provision of RUN.
In case of a rejection you will get another chance to fill the same without any further charges of Rupees 1000/-.
If you do not get an approval, even for the second time, then you can file it again which is still cheaper than the RUN form. The whole process including name approval and Incorporation of the company takes around 2-3 days.
There is no ROC fees for incorporation of a company having an authorized capital upto Rupees 10 lakh.
The SPICe serves the purpose of Application for allotment of Director Identification Number, Reservation of company name, Incorporation of a new company, Application for PAN AND TAN – thus making the entire incorporation process for new entrepreneurs a lot easier.
Creating and Filing the Memorandum for Registration of the Private Limited Company or the One Person Company
The promoters are required to file the e-memorandum of association in form no-INC-33 which includes-
#1. Name clause stating the name of the company.
The name of the company shall not be similar to any king, queen or any existing company without their permission. It must be registered with 6 alternative names from which ROC will select any one name.
#2. Object clause in the Memorandum.
This should state the object of carrying on business activity and the business activities that shall be undertaken by the company, which is divided in two types - Main object and Ancillary object.
#3. Registered office clause in the Memorandum
This clause should be stating the office where main business activity or business shall be carried out. It must be registered with Registrar of Companies and it shall also disclose information regarding branches if any.
#4. Capital clause mentioning about the paid up capital of the company.
This must mention how many shareholders the company has. In case of a one-person company, it will be only one.
This clause must also mention the number of shares each shareholder holds and the value of each of the shares. It must also mention the total value of all the shares of the company.
#5. Liability clause in the Memorandum of Association
This part should be disclosing the liability structure of the company, which may be limited or unlimited. However, generally the liability of the member is limited i.e. only up to unpaid amount that can be called by the company.
We have mentioned about how to create a memorandum of association for Indian companies in more detail in this article.
Apart from this, you need to file the bye-laws and articles of association of the company via INC- 34.
Articles of association shall mention about the names of the directors of the company, the functioning of the company, company policies. It will also provide for how the directors and key managerial personnel shall carry out the affairs of the company so as to improve business communication and functioning.
Submission of an Affidavit for Incorporation of the Company
After that you should submit an affidavit by all the subscribers to the memorandum and from persons named in the articles as the first directors that they have not been convicted in any offence related to promotion, formation or management of any company and they have not been held guilty of any fraud or misfeasance or of any breach of duty relating to any company under the statute or under any previous Companies Act during the last five years.
An affidavit should be submitted by all the persons above that all the documents filed with the ROC for registration of the company contain information that is correct and complete and true to the best of his / her knowledge and belief.
A declaration should be submitted that all the requirements of the Act and the rules made have been complied with in respect of the registration of the company.
The declaration should be signed by-
- An advocate of the Supreme Court or of a High court or an attorney or pleader entitled to appear before a high court.
- Or a practicing secretary or chartered accountant.
- Or a person named in articles as a director or manager.
- Or the company secretary of the company.
You should submit an address for correspondence until the registered office of the company is established along with the full name, residential address, nationality and other details of every subscriber to the memorandum with proof of identity and address.
However it is recommended that you establish a registered address for your company before incorporating it in the first place.
Submission of Details of the Key Personnel of the Company for Registration of the Private Company or One Person Company
You should submit the particulars of the persons mentioned in the articles as the first director of the company.(Full name, residential address, nationality, Director Identification number etc.)
You also need to submit the particulars of the Interests of the persons named as the first directors of the company in other firms or bodies corporate along with their consent to act as directors of the company.
Any agreement regarding the appointment of directors is to be enclosed.
You should also submit a power of attorney authorizing a director of your company to correct Memorandum of association and articles of association.
You should submit the original letter approving the name of the company.
The required stamp duty prescribed by the stamp Act is to be paid on “Memorandum of Association” and “Articles of association”.
The above documents have to be filed along with required filing fees by demand draft in favour of the Registrar.
If the registrar is satisfied and the conditions regarding the registration are fulfilled, Certificate of Incorporation / commencement and Corporate Identity Number (CIN) shall be issued after the system auto-generates the PAN and TAN forms, which also have to be affixed with the digital signature.
These forms have to be uploaded on MCA Portal. The CIN can also be tracked online on MCA portal.
Additional Procedures to Incorporate or Register a One Person Company
All the procedures for Incorporating OPCs are the same as that for private companies. However, there are some additional requirements, which are mentioned below:-
In case, there is death or Incapacity to contract of original member the memorandum must state the name of another person who will become the member of the company.
Prior written consent of such a person should be taken and it should be filed with ROC at the time of the Incorporation of the One Person Company.
In case the person nominated by the original member wants to withdraw, he can do so by withdrawing his consent in a prescribed manner. Such changes should be filed with the ROC.
Such change in the memorandum is not implied as an alteration of the memorandum of One Person Company.
Wrapping it Up
Thus, to conclude I would like to sum up that in order to get a certificate of incorporation, first you need to fill out all the details in the incorporation form of SPICe. Later the PAN (Permanent Account number) and TAN (Tax deduction and collection Account number) of the company will be issued after the application is done for the same in form 49A for PAN and form 49B for TAN.
All the forms that we discussed in this guide can be downloaded from this page in the website of the Ministry of Corporate Affairs.
If you have any questions, let us know by leaving your comments down below. You can also send us an email and we will guide you through all the entire steps for registering your company.
Author Bio: Drishti Saigal hails from a legal background and was an intern at WinSavvy. Connect with her on LinkedIn.
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