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Private Limited

A private Limited company is a privately owned business entity formed for any lawful purpose under the provisions of companies Act, 2013. Having minimum of two and maximum of two-hundred members and the name of the company ends with the words ‘private limited’. Identified/Highlighting key factors of Private Limited Company are greater stability, better credit worthiness, easy bank loan accessibility, continuity in existence, restrictions on acceptance of public deposits and protection of personal assets etc. A foreign entity can enter in Indian business market mainly by two options, either by establishing a Liaison/Branch/Project office in India or incorporating a private limited company that is subsidiary of the foreign company intending to make FDI (Foreign Direct Investment) in India.

Details about Private Limited(Non Resident)

Non Resident Individual seeking interest to start their operations in India as a start-up structure can incorporate a private limited company with substantially relaxed and lesser compliance regime as compared to public limited Company. Foreign direct investment in India has mainly have two entry routes- Automatic & Approval route, FDI under approval route requires approval of FIPB before making investment in India were as no prior approval require for making FDI through automatic route, although post intimation to RBI (Reserve bank of India) within 30days of receipt of investment money in India and particulars of allotment of shares is required. A private Limited Company is a well renowned form of business structure popular throughout the world. The Minimum of 2 and Maximum of 15 directors can be appointed by any private limited company. Being the most popular and preferred form of business in India as it combines the features of both company and LLP firm. A Private Limited Company has a separate legal structure and can sell/purchase properties or shares on its own name with lesser formalities. In event of winding up, the personal assets of the members shall not be held liable for debts and losses of the company.

Features

  • Legal Status

    As a juristic legal person, both company and members have separate legal identity that is distinct from each other. Unlike members/shareholders, company is not a natural person but though it can purchase or sell properties in its own name, can sue or be sued by/from parties without any restrictions.

  • Perpetual succession

    A company existence is uninterrupted, even the death or insolvency of shareholder(s) the continuity of business shall not get affected. A member may come or go but the company continues to exist for long, until it is legally dissolved.

  • Prohibited sectors for foreign investment through a private limited company

    Government has restricted Non Residents to make a Foreign Direct Investment in certain sectors namely Atomic Energy, Lottery Business, Betting and Gambling, Chit Fund Business, Nidhi Company, Investment in agricultural (excluding Horticulture, Floriculture, Animal Husbandry, Development of seeds, Pisciculture and cultivation of vegetables, mushrooms, etc., Trading in Transferable Development Rights (TDRs), Business of Housing and Real Estate is also prohibited excluding township development, construction of residen¬tial or commercial premises, roads/bridges and Manufacturing of items like cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes are not at all entertained.

  • Can Have Foreign Nationals as Directors

    Minimum of 2 directors required by any private limited company out of which one should be compulsorily a resident of India rest other directors can be non-resident.

  • Financial Assistance

    Private Limited Company is not allowed to borrow capital from public however its growth is not restricted hereby as it can attract finance from PE Investors, banks and other financial institutions to meet its requirement/obligations without any restrictions.

  • Protection of Personal Assets

    The liability of shareholders is limited to the proportion of unpaid portion on allotted shares and which can only be demanded from the shareholders in case where company’s assets are not sufficient to meet the outstanding liabilities at the time of winding up. So, the personal assets of the shareholders are fully protected with the above exception.

Pros & Cons

Pros

  • Shareholders of companies those are limited by shares are free to transfer their shares to any other person as per their desire. If a business has to be sold off as a going concern entire shareholding could be transferred to the purchaser thus facilitates easy change in management and ownership.
  • Private Limited companies have huge borrowing capacity they can easily finance their business with less risk involvement as they can raise money through venture capital funding or angel funding to meet their financial requirements.
  • One of the most important reasons to incorporate a Private limited Company by shareholders is certainly the desire for the limited liability. Private company avails the advantages of limited liability and therefore the personal assets of the members are not liable for the debts of the company.
  • A private limited company allows 100% FDI through automatic route (except the prohibited Sector) and prior approval of FIPB (Foreign Investors Protection board) required in case of approval route.
  • Although, the profit earned by a Private Limited Company is freely remittable from India, subject to payment of applicable taxes to the Government.

Cons

  • Winding up of a private limited company is a tedious process and has to follow the mechanism provided in the companies Act thus overall cost involve in the process is comparatively high.
  • Major dis-advantage for a private limited company is that they cannot borrow money from public to finance their business which at certain point restricts their business growth.
  • Audit for a private limited company is compulsory if the turnover of any person carrying on business exceed or exceeds Rs.1 Crore and for the persons carrying on profession exceed Rs. 25 Lacs.
  • Burden of Compliances like TDS Return, Service Tax Return, Income Tax Return, VAT Return, PF/ESI returns, ROC registration, Professional Tax and other statutory registrations etc. for a private limited company are comparatively high as compared to other business entities.

Applicable Taxes & Compliances

Private limited companies for Non Resident are subject to tax rate of 40% on tax profits. Tax profits are computed based on certain adjustments over book profit as per Indian Income tax law. The aforesaid tax rate is to be increased by surcharges and applicable cess as well. Currently surcharge is 2% of such tax, where total income exceeds one crore rupees but not exceeding ten crore rupees and at the rate of 5% of such tax, where total income exceeds ten crore rupees. Further 2% Education Cess and 1% Secondary and Higher Education Cess is also payable on tax amount and surcharge.
Service tax is a tax levied by Government of India on services provided or to be provided excluding services covered under negative list or mega exemptions as defined in service tax law. At present, the consolidated rate of service tax is 15% on the value of services. However service tax liability may arise on reverse charge basis, where service tax is paid by service recipient for prescribed services at prescribed rates.
Value Added Tax is a state level legislation attracts on intra state sale of goods in India and on Inter-state sale of goods Central sales shall apply. It is a type of consumption tax which is imposed on the value of goods and services on each stage of its production and at final sale. Normally, the rate of Vat varies from state to state. The standard rate of VAT is 20% on the selling price.
In India, excise duty is leviable on manufacturing of goods and it is ultimately borne by the consumer as it a consumption based tax. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. The Liability to pay excise duty to the government lies with the producer of goods. At present, the rate of excise duty is 12.5% as per the excise law.
Import Export (IE) Code is mandatorily required to be obtained by any person/business entity importing or exporting goods and services to/from India unless specifically exempted. IE Code is a 10 digit unique code issued by Director General of Foreign Trade, Ministry of Commerce and Industries, Government of India to facilitate and identify all import and export to/from India. Private Limited Company engaged in export/import activities is required to obtain IE Code.
It is a tax imposed on the transaction value of goods imported in India and exported outside India. It is governed by The Central Board of Excise and Customs (CBEC) under the Ministry of Finance, Government of Revenue. Custom Duties are usually levied with ad valorem rates on the base value of the transactions in the event of Import/Export of goods.
Private Limited Company are also required to obtain Permanent Account Number (PAN), Tax Deduction and Collection Account Number (TAN), Service tax Code, ROC registration, Professional Tax and other statutory registrations as may be applicable. Periodic compliances include TDS Return, Service Tax Return, Income Tax Return, Annual Activity Certificate, PF/ESI returns etc. as may be applicable.
Labour laws in India are those bodies of laws which define the rights and obligations of workers, union members and employees working in an organization. Labour law covers Industrial relations, health and safety measures at workplace, define Employment standards and interlinks relationship between employees, employers and the government. Labour law is further divided into two broad categories i.e. collective labour law & individual labour law. Individual Labour law covers the rights of employees at workplace or at any contract of work whereas the collective labour laws governs the tripartite relationship between employee, employer and union. Some of the laws included in it are:

Employees Provident Funds and Miscellaneous Provisions Act, 1952

The Act is applicable to every establishment in which twenty or more persons are employed and a factory engaged in any industry specified in Schedule I of Act. Under this act both the employer and employee has to contribute 12% of the basic + Dearness Allowance of the employee’s salary to the EPF and EPS on monthly basis. The objective of this act is to provide financial security and stability in cases where employee no longer fir to work or at the time of retirement.

The Employees State Insurance Act –

Under this act the employer and employee has to contribute 4.75% and 1.75% each of the gross salary to ESIC. Its objective is to provide benefits to employees in case of sickness, injury or related matters. This act is applicable to the employees whose wages are up to 15000 pm.

The Payment of Gratuity Act –

Gratuity is a reward offered by the employer to his employee in the event of termination of his employment provided continuous service shall not less than 5 years except in case of death or disablement of employee. Payment of gratuity is mandatory for those employers having more than 10 employees in an organization/factory/plantation/port/shops/mines etc. as per the provisions contained in Gratuity Act, 1972. Gratuity shall be payable @ 15 days wages for every year of completed service.

Procedure

How long Does It Take?

Apply and obtain DIN or DSC

1-5 Days

Obtaining DSC is the first and foremost step while incorporating private limited company and now it can easily be applied online by approaching any of the authorised dealers. Application for DIN is prepared through online mode in prescribed Form DIR-3 based on the information of the applicant and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in along with the requisite documents of the applicant and prescribed fees.

Apply and Obtain Name Approved by ROC

5-10 Days

Application for reservation of the name for the proposed company is required to be filed online in prescribed Form INC-1 along with minimum one and maximum six proposed name in order of preference and is to be submitted before the Ministry of Corporate Affairs website i.e. www.mca.gov.in by paying the prescribed fees.

Drafting and Filling MOA, AOA and other incorporation documents with ROC

5-10 Days

Drafting and filling of certain documents relating to Incorporation such as Memorandum of Association (MOA) and Articles of Association (AOA) along with various declaration obtained from directors/members (INC-9,DIR-2,MBP-1) to be submitted before the registrar in Form- INC-7,INC-22 and DIR-12 along with the prescribe fees and stamp duty as prescribe rates of Government.

Certificate of Incorporation

3-4 Days

Once all the forms are duly approved by ROC and no objection is being raised, the digitally signed “certificate of Incorporation” is emailed to the directors. The time period in receiving Certificate of Incorporation may vary and depending on the location and other factors. After receiving COI, the company can start its operation.

FAQ

  • Minimum and Maximum strength required to incorporate a private limited company?

    For setting up a private limited company, minimum of 2 and maximum of 200 shareholders are required and minimum of 2 and maximum of 15 directors can be appointed by any private limited company.

  • What do you mean by authorized share Capital?

    The maximum amount of share capital the company can issue in its lifetimes to its shareholder, as stated in its Article of Association or by virtue of shareholders vote.

  • Is my physical presence is mandatory to incorporate a Private Limited Company?

    No, physical presence is not mandatory for the incorporation of a private limited company. You all need to prepare scanned document and send it through mail.

  • How long Registration Certificate is valid?

    Once the Certificate of Incorporation is issued by the MCA, it is valid for life time of the company until it is voluntary or legally dissolved as per the provisions of the Companies Act, 2013.

  • Does private limited company is continuous process?

    A company existence is uninterrupted and it is a underway process , even the death or insolvency of shareholder(s) does not affect the continuity of business. A member may come or go but the company continues to exist for long, until it is legally dissolved.

  • Is Tax Audit is mandatory for a private limited company?

    No, Audit for a private limited company is not compulsorily, until the turnover of any person carrying on business exceed or exceeds Rs.1 crore and for the persons carrying on profession exceed Rs. 25 Lacs.

  • How to choose a name for a private limited company?

    You must be careful while choosing a name of the private limited company, make sure it is unique and not similar with any other already existing company name or not resemble with any other registered trademark. Therefore, you have option to pen down 6 proposed names in order of preference at the time of filling Form Inc-1.

  • Pen down the sectors prohibited by Government for foreign investment through a private limited company?

    Government has restricted Non Residents to make a Foreign Direct Investment in certain sectors namely Atomic Energy, Lottery Business, Betting and Gambling, Chit Fund Business, Nidhi Company, Investment in agricultural (excluding Horticulture, Floriculture, Animal Husbandry, Development of seeds, Pisciculture and cultivation of vegetables, mushrooms, etc., Trading in Transferable Development Rights (TDRs), Business of Housing and Real Estate is also prohibited excluding township development, construction of residen¬tial or commercial premises, roads/bridges and Manufacturing of items like cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes are not at all entertained.

  • What all need to be a valid director of private limited company?

    The minor shall not be appointed as director of the company he needs to be over 18 years of age and must be a natural person. Foreign nationals are also eligible to be a director in an Indian Private Limited Company.

  • Is an office required for starting a Private Limited Company?

    Any commercial/industrial/residential premises can be used as a registered office of the company in India where communication from the MCA will be received for the purpose of smooth functioning of the business.

  • Is there any minimum capital requirement to incorporate a private limited company?

    Private company does not have to comply with any minimum capital requirement, although fee must be paid to the Government for issuing a minimum of shares worth Rs.1 lakh [Authorized Capital Fee] during the incorporation of the Company.

  • What are the benefits for registering a Private Limited Company?

    Private Limited Company are beneficial in many ways such as greater stability, better credit worthiness, easy bank loan accessibility, continuity in existence and protection of personal assets etc. A Private Limited Company has a separate legal structure and can sell/purchase properties or shares on its own name with lesser formalities.

  • What is Director Identification Number?

    DIN is a unique identification number containing personal information about all the existing or proposed directors of the company issued by the Ministry of Corporate Affairs. Once DIN is issued against 1 director and is valid for lifetime and never get expires. It is mandatory to obtain DIN for all the existing or proposed directors.

  • Why PAN is mandatory?

    Permanent Account Number (PAN) is a ten-digit alphanumeric number, issued by Income tax department of India as a proof of identification for tax purposes. It is mandatory for obtaining Digital Signature Certificate, Director Identification Number, opening bank account, various statutory registrations, pay taxes and filing tax returns and many other transactions as prescribed by government time to time.

  • Whether profit made by Non Resident individual is wholly repatriable from India?

    Yes, Profits earned by the private limited company are freely remittable from India for Non Residents, subject to payment of applicable taxes to the Government.

  • What are the entry routes for making Foreign Direct Investment in India?

    Foreign direct investment in India has mainly have two entry routes- Automatic & Approval route, FDI under approval route requires approval of FIPB before making investment in India were as no prior approval require for making FDI through automatic route, although post intimation to RBI (Reserve bank of India) is to be given within 30days of receipt of investment money in India and particulars of allotment of shares is required.

Documents Required

DOCUMENTS REQUIRED FOR THE PROCESS

    Documents required from Directors/Promoters/Shareholders

  • Copy of Passport size photograph
  • Copy of Notarised or Apostilled Passport ( Mandatory)
  • Address proof such as Driving License/ Residence Card/Bank Statement/ Government issued form of identity containing address.
  • Copy of Latest Bank Statement/Telephone or Mobile/Electricity or Gas Bill. ( Not older than 1 year)

    Documents for Registered Office of Company

  • Copy of Notarised Sale deed/ Property Deed in English in case of owned property( Not older than 1 Month)
  • Copy of Latest Bank Statement/Telephone or Mobile/Electricity or Gas Bill. (Any one, Not older than 2 months)
  • Notarised rental agreement or Lease Agreement in English along with No objection certificate from the owner
  • *Note-In case one of the shareholder or subscriber to the MOA and AOA is a Corporate Entity (Company, LLP, etc.,), then Certificate of Incorporation of the Body Corporate must be attached along with the resolution passed in favour of Body Corporate to subscribe the shares of the proposed incorporated company.
  • *Note-In addition to the above proofs and documents, a number of documents and affidavits would be drafted by a Professional. Above legal documents specifically made for the purpose of incorporation must be signed and notarized by the promoters of the Company.