A Private Limited Company is a type of company where the liability of the shareholders is limited. The Number of members / shareholders are restricted up to 200 and such members are barred from offering their shares to the public. In case the Private Limited Company faces any financial exigences, then the shareholders’ assets are protected, and their liability is limited to the number of shares held by them.

According to Section 2(68) of the Companies Act, 2013, a Private Limited Company is defined as a company that:

• Has a minimum paid-up share capital of Rs. 1,00,000/- or such other amount as prescribed by the law;

• Restricts the transfer of shares to public, through its Articles of Association;

• Limits the number of members to 200, except in case of a One Person Company;

• Prohibits invitation to public for subscription to securities of the Company.

Here are some of the main features of a private limited company:

• Membership Structure: The requirement is that the applicant must have at least two shareholders. However, there is a ceiling of maximum 200 members in a Private Limited Company.Furthermore, to operate the company’s business, you will require two directors.

• Limited Liability Protection: Yet another characteristic of the private limited company is that it is incorporated with limited liability features. This point means that in a case of losses or debts, the risk that an individual member or a shareholder will be held liable for is limited to their share in the Private Limited Company.

• Separate Legal Entity: A Private Limited Company being a separate legal persona has the advantage of perpetual business existence. This means that even if all the members are no longer associated with the Private Limited Company due to transfer of ownership or death the Company survives under the eyes of the law. The Company’s life in its operation is not in any way impacted on by the lives of the shareholders or members unless the company is dissolved through a formal resolution.

• Required Capital to be Paid up: The minimum paid up capital requirement that is required in order to run a private limited company is Rs. 1,00,000/- or such amount as prescribed by the Ministry of Corporate Affairs. Another legal requirement is that your Company has adequate capital, which means it’s financially sound to run the business.

This is a step-by-step instruction that will help you start your business as a private limited company:

Step 1: Get DSC/ Digital Signature Certificate Apply for DSC/ Digital Signature Certificate at the Controller of Certification Agencies (CCA) portal by uploading passport photos, PAN, Aadhaar Card No, phone no, and email id. If applicable the foreigners should also submit the legalised documents either through notary public and apostille.

Step 2: Apply for a Director Identification Number (DIN) An essential requirement within the incorporation process is the Director Identification Number abbreviated as (DIN) and must be filled in the incorporation form.

Step 3: Apply for a Unique Company Name (SPICe+ Part A) Filling up the SPICe+ Part A form, the name of the company can be reserved by selecting the type, class, category, and sub-category and by giving detailed business description. Two names should be proposed to be approved in order to avoid duplication of names by other stakeholders.

Step 4: File SPICe+ Part B Business detailing company’s capital, registered office address, subscribers, Directors, stamp duty paid, PAN and TAN compliance. Make sure all documents to support it are included so as to have a complete submission.

Step 5: SPICe+ Incorporation Forms with Memorandum of Association (MOA) and Articles of Association (AOA) and spruce up all important company information. It is required that before submitting the documents to the Ministry of Corporate Affairs, the subscribers and other professionals involved in the company incorporation process are to provide their digital signatures.

Step 6:  Subject to the verification of the above facts, the following among others shall be issued to the Company: the Ministry of Corporate Affairs MCA shall register the company with the following ; Certificate of Incorporation with Company Identification Number (CIN), Permanent Account Number (PAN), and Tax Account Number (TAN).

• Limited exposure of shareholders' property: The liability of the members is limited which means, in case of financial crisis in the Company, the properties of the shareholder will be protected.
• Legal Recognition: A Private Limited Company has a separate legal status from its members. This means that the Private Limited Company also has the duty of managing the debts and the creditors apart from managing the assets and liabilities. 

• Reliability: The Ministry of Corporate Affairs (MCA) requires the Companies to report its annual financial statements, Board’s Report, Directors’ details and KYC, Registered Office details etc. as a matter of compliance as enlisted under the Companies Act, 2013, on its portal. Such filings are available for public inspection, which enhances the transparency of such Private Limited Companies. As such, there is the understanding that the private limited company is a more trusted form of corporate structure. 

• Legal Personality: A business entity enjoys perpetual existence, meaning that the entity will carry on its operations up to the time when it closes down. In the same procedure, a company is accepted as an organisation that is known to have a juridical personality of its own. Consequently, a company can carry on its existence even after changes have occurred in the composition of those who belong to the association and without the death or dissolution of any of the members.

• Directors and Members: According to the Companies Act, 2013, a Private Limited Company requires minimum 2 Directors and 2 Shareholders for incorporation.

1. The Directors of the Private Limited Company are required to have a Director Identification Number (DIN) for which an application is to be made by filing necessary documents with the Ministry of Corporate Affairs (MCA) In the same way, every Company needs to have at least one resident director who should have lived in India for not less than 182 days in the year the Company was incorporated.

• Name of Company: Selecting a Private Limited Company’s name can be tricky and a technical task. While choosing a name during incorporation, the following essential things are to be ensured:

1. Main Name

2. Activity proposed be carried out by such Company

3. Suffix - ‘Private Limited Company’

4. Proposed names should not be closely resembling to any existing company names

• Registered Office Address: The Company also needs to provide a permanent office address where it will be carrying out its main business activities, at the time of incorporation. This office address also implies the place where the Private Limited Company shall maintain all its statutory records.

In order to set-up a Private Limited Company one has to comply with certain statutory requisites. The following are the standard prerequisites that you need to fulfill:

• Members and Directors: A private limited company should consist of at least two members, but the limit of the members is 200. Additionally, the Directors must meet the following conditions:

1. Hitherto, a person has to obtain the Director Identification Number (DIN) from the Ministry of Corporate Affairs in order to become a Director.

2. Currently, the Indian company must have at least one Resident Director, who has spent more than 182 days in India within the previous calendar year.

• Choosing a Company Name: A private limited company must ensure its name includes three essential elements:

1. Main name

2. Activity to be carried out

3. At the end of the company name the word used is ‘Private Limited Company’.

• Registered Office Address: On incorporation, the company has to file the particulars of its permanent registered address with the ROC. This is the company’s principal place where all the main affairs are solved and all the documents are kept.

• Obtaining Essential Documents: While submitting the electronic document, every company needs to get a Digital Signature Certificate for document verification. Furthermore, if employees are involved in various activities including professionals such as secretaries, chartered accountants, or cost accountants certification from the professionals is required.

The incorporation fees for a Private Limited Company in India are as under: However, it depends on the Share Capital, No. of Directors, State Stamp duty and other incidental charges may also be applicable. Below is the breakdown of some of the cost estimates that may be in this process:

• In fact, it is impossible to give a clear and concise answer to this question because the answer depends on many aspects of the incorporation process’s life cycle. The time is influenced by the availability of the company name, the documents necessary, and certain pressure on the government authorities' workload.

• The final time taken during the incorporation process of a private limited company in India may take approximately 12-18 days depending on the busy business of the government office handling the application.

This is very important for private limited companies since it makes them adhere to set laws and also uphold good governance every year.

Annual compliances:

• Annual General Meeting (AGM):

  1. First AGM of a company is to be conducted within 9 months from the closure of the first financial year, and thereafter, to be conducted within 6 months from the closure of every financial year, unless requested for an extension.

  2. Companies are required to ensure that no more than 15 months of gap should pass between the two AGMs.

  3. Conducting an AGM requires the private limited companies to prepare notice of AGM, thereafter the minutes of AGM, and necessary resolutions.

• Filing of Annual Financial Statements: 

  1. E-form AOC-4 (non XBRL / XBRL / IND AS XBRL - as applicable) is to be filed with the ROC within 30 days of conclusion of the AGM.

  2. The above e-form requires the company to prepare the Director's report in terms of Section 134 of Companies Act, 2013.

• Filing of Annual Returns:

  1. e-Form MGT-7A (for small companies) or MGT-7, as applicable, is to be filed within 60 days of the conclusion of the AGM.

• Board Meetings:

  1. Companies Act, 2013 requires a private limited company to hold a minimum of four board meetings each year.

  2. The notices, agenda, minutes, and resolutions are some of the documents necessary for a board meeting.

• Director KYC:

  1. Companies Act prescribes that every individual having a Director Identification Number (DIN) is required to submit his KYC by 30th september every year in Form DIR-3KYC. Failure to this compliance attracts a penalty of Rs. 5000/- along with deactivation of DIN. 

• Return of Deposits:

  1. Every Company is required to file their return of deposits and other non-deposits by 30th June every year.

• Appointment and Reappointment of Auditors:

  1. The first auditor of the Company is required to be appointed within 30 days of incorporation and the same is to be ratified by the shareholders during the first AGM of the company. 

  2. E-form ADT-1 for the appointment of auditors is to be filed within 15 days of the appointment with the ROC.

• Statutory Registers and Records:

  1. Maintenance of statutory registers (Register of Members, Register of Directors, etc.) is to be done on a regular basis.

Event-driven Compliances:

• Authorised Capital of the Company;

• Through rights issue, preferential allotment or private placement, shares can be allotted;

• Changes in Directors either by way of appointment, resignation, removal of disqualification;

• Change in designation of a director;

• Change in registered office of a company, from - within the city limits to from one State to another

• Availing loan facility etc.

Consequences of Non-Compliance:

• • There are penalties and fines prescribed for failing to meet secretarial compliance.

  • It also affects the reputation as well as the legal ramifications to the company. 

Among different forms of business entities in the Indian economy the Private Limited Company forms a distinct part among the entrepreneurial organizations. That said, one consideration in many discussions is the tax advantages of running a Private Limited Company.

Let’s discuss the tax advantage of operating a company in India by clearly stating procedures of incorporating  a Private Limited Company and the general aspect of company set-up charges in India.

• Limited Liability, Unlimited Tax Benefits

1. A huge strength of a Company is that it provides its shareholders with limited liability. This means that whatever an individual or shareholder may own cannot be taken to pay for any outstanding debts in that company. But how does this link up to tax advantages?

2. The Company is a legal personality, and more specifically, carrying on a private limited business is the operation of a separate legal personality. Your income and assets are different from that of the Company, so your wealth is thereby protected from the company’s taxes such as property taxes. At the same time, the owner’s assets bear the risk related to business debts and taxes in a sole proprietorship or partnership.

• Lower Tax Rates

1. The tax laws applicable to private limited companies in India are enjoyable, one more factor to consider. Another incentive that Private Limited Companies enjoy are that the corporate new tax regime rates are lower than those of an individual.

2. Any Private Limited Company which has an annual income of up to Rs 250 crore is within the bracket to attract a corporate tax rate of 25%. There are as high as 30 percent for earners of a given threshold on the personal income tax. Further, the private limited companies do not have to pay dividend distribution tax (DDT) consequently, the shareholders of the Private Company do not pay taxes on receipt of the dividend that the Company pays them. Rather, it is liable to tax at personal level depending on the relevant tax bands.

• Deductions and Exemptions

Export taxes are one source of income for companies in India, Further, Private Limited Companies in India are entitled to several tax incentives and other benefits that could minimize their tax responsibities. The main deductions and exemptions that fall under it are:

1. Start-up Deductions: In order to enhance the innovation and entrepreneurship of the start up business organization, the Indian government has offered different types of tax incentives and tax exemptions for a limited period to those business organizations which are incorporated  as a Private Limited Company.

2. Research and Development (R&D) Deductions: Any Private Limited Company that incurred expenditure on eligible R & D activities can claim deductions under Section 35 of the Income Tax Act.

3. Export Promotion: The export capability may provide tax advantage to the firms including those assigned under section 10AA of the Income Tax Act.

4. Investment-Related Deductions: Tax exemptions can be claimed by Private Limited Companies that have made investments on specified assets or sectors under Section 32 of the Income Tax Act.

These deductions and exemptions are useful in decreasing the tax obligation of the private limited companies hence making the business entity attractive among the business communities in India.

• Perpetual Existence

1. In contrast to sole proprietorships and partnerships, which depend on the businessmen’s life cycle, Private Limited Companies exist even if the owners change.

2. This stability is precisely appropriate with tax planning and is appropriate with succession planning.It is possible to have an organization structure which reduces taxes without reducing effectiveness of ownership or management, especially when it is necessary to change it; all together with the usage of the peculiarities of one person company.

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The following are the list of documents which are mandatorily required for incorporation of a Private Limited Company:

A. Registered Office Address Proof

• If Property Owned:

1. Maintenance Bill OR Property Tax Bill – Not older than 2 Months
2. Any of the following documents: Electric bill/ Telephone bill/ Water bill, cannot be more than two months old.

• If Property Rented:

1. Lease / Rent Agreement
2. Any of the following documents: Electric bill/ Telephone bill/ Water bill, cannot be more than two months old.

B. Director & Shareholder Documents

• Indian National – All documents to be self-attested

1. PAN Copy
2. Aadhar Copy
3. Bank Statement for Address Proof not older than 2 months
4. Passport Size Photograph

• Non Resident Indian (NRI)

1. PAN Copy – Self Attested
2. Aadhar Copy, if available – Self Attested
3. Passport Copy – Self Attested
4. Visa Copy or OCI Card Copy – Self Attested
5. Bank Statement or Electricity Bill for Address Proof – Apostilled
6. Passport Size Photograph

• Foreign National

1. Passport Copy - Apostilled
2. Bank Statement or Electricity Bill for Address Proof – Apostilled
3. Passport Size Photograph

InstabizFilings eagerly awaits to help you in starting up your private limited business in India.

When listing down all the benefits of operating a Private Limited Company in India, it becomes imperative to work with a good and efficient service provider to complete Private Limited Company incorporation in India. That is where InstabizFilings comes in handy.

InstabizFilings is one of India’s premier Company incorporation services that offers compliance solutions for India Private Limited Company incorporation. Here's why you should choose us for your India Private Limited Company incorporation needs:

• Expertise and Experience: InstabizFilings is also manned by a team of qualified professionals that possess deep knowledge in Private Limited Company incorporation. We have the experience of law and taxation in India so we provide a hassle free and efficient process of incorporation.

• Seamless Process: Easy workers sign up by simplifying the incorporation process hence shortening the duration it would have otherwise taken.

• Customized Solutions: Our services will suit your business needs because we offer them customized based on your needs. We provide specific services that help to ensure your Private Limited Company is incorporated in the best way possible of claiming back tax.

• Compliance Assurance: It is very essential for the sustainability of a Private Limited Company to ensure that it fully complies with the legal laws of the Government. InstabizFilings offers a continuing compliance service so you can fulfill all the legal obligations in a company.

• Transparent Pricing: Our fees are fairly calculated, reasonable, and not accompanied by hidden charges.

Finally, it is possible to conclude that there are a number of safe tax in india benefits arising from business establishment in India: This is possible due to limited liability of business owners, preferential tax rate and assortment of circumstances giving rise to allowance and deductions. 

You can trust InstabizFilings for Private Limited Company incorporation in India – do it wisely and select InstabizFilings. Using our expertise gained in the years of providing incorporation services, not mentioning personal approach and commitment to offering outstanding services of the highest quality, we could meet all of your incorporation needs of your Private Limited Company. 

Call us now for free and start your path towards enjoying all the tax benefits sponsored by Private Limited Companies in India.