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Private Limited Company Incorporation: A Simple Guide for Entrepreneurs
Starting a business is an exciting venture, and one of the most important decisions you will face is choosing the right business structure. Among the various options available, incorporating a Private Limited Company (PLC) is one of the most popular and reliable choices for entrepreneurs. In this article, we will walk you through the entire process of Private Limited Company Incorporation, its benefits, requirements, and what makes it a favorable option for business owners.
What is a Private Limited Company?
A Private Limited Company is a type of business entity that offers limited liability protection to its owners or shareholders. This means that the personal assets of the shareholders are protected from the company’s debts or liabilities. If the company faces financial difficulties or lawsuits, the shareholders are not personally responsible for the company’s obligations beyond their initial investment in shares.
The key features of a Private Limited Company include:
- Limited Liability: Shareholders are only liable for the amount they have invested in the company.
- Separate Legal Entity: The company has its own legal identity, separate from its owners.
- Ownership via Shares: The company’s ownership is divided into shares, which can be transferred (subject to restrictions in some cases).
- Limited to Private Shareholders: The company cannot invite the public to buy shares or offer them on the stock exchange.
Given these characteristics, Private Limited Companies are seen as a secure and structured way to conduct business while protecting the interests of the shareholders.
Eligibility Criteria for Private Limited Company Registration
The registration process for a Private Limited Company in India requires certain basic documents and criteria to be fulfilled. Here’s what you need:
- Directors and Shareholders: You need a minimum of 2 directors and 2 shareholders. They can be the same individuals.
- Company Name: Choose a unique company name that complies with the guidelines set by the Ministry of Corporate Affairs (MCA).
- Registered Office: You must have a registered office address in India. This can be a commercial or residential address.
Benefits of Private Limited Company Incorporation
Before diving into the process of incorporating a Private Limited Company, it’s important to understand the numerous advantages this structure provides. Here are some of the main benefits:
1. Limited Liability Protection
As mentioned, one of the most significant advantages is the limited liability protection for shareholders. In the event of financial loss, the shareholders’ personal assets, such as their homes or savings, are not at risk. The liability is limited to the amount of capital the shareholders have invested in the business.
2. Legal Identity and Continuity
A Private Limited Company is treated as a separate legal entity from its owners. This means that even if the shareholders or directors change, the company continues to exist. The continuity of the business is not affected by the death or exit of any shareholder or director.
3. Easier Access to Finance
A Private Limited Company can raise capital more easily through the sale of shares to private investors or by applying for loans. Banks and financial institutions are often more willing to lend to Private Limited Companies due to the limited liability protection and the company’s formal structure.
4. Tax Benefits
Private Limited Companies often enjoy various tax advantages, including lower tax rates compared to sole proprietorships or partnerships. In many jurisdictions, companies are taxed at a corporate tax rate, which can be more beneficial than personal income tax rates.
5. Credibility and Professionalism
Incorporating your business as a Private Limited Company can enhance its credibility with customers, suppliers, and potential investors. The formal structure signals professionalism, and clients may feel more secure dealing with a legally registered company than with an individual or informal business entity.
6. Ownership Transfer
Shares in a Private Limited Company can be transferred to other individuals or entities, allowing business owners to easily sell their interests or bring in new investors. This makes it easier to exit the business or bring in fresh capital without disrupting operations.
Private Limited Company Incorporation Fees
Basic Package
₹
7,999/-
- Two Digital Signature
- Memorandum of Association
- Articles of Association (AOA)
- COI, e-PAN & TAN
Standard Package
₹
9,999/-
- Basic Package +
- GST Registration
- MSME Registration
- Bank A/c opening Support
Premium Package
₹
14,999/-
- Standard Package +
- First Auditor Appointment
- ADT-1 filing
- INC 20A (commencement Filing)
Note on Above quotation
1. Above Costing is with 2 directors only
2. Stamp Duty will be on Actual basis as its vary from state to state and also depend on amount of capital
2. Stamp Duty will be on Actual basis as its vary from state to state and also depend on amount of capital
Documents Required for Private Limited Company Incorporation
Promoter's Document
- Passport Size Colour Photograph
- Self attested Pan Card of All Promoters
- Self attested Aadhar Card
- Identity Proof – Passport or Voter ID Card or Driving License
- Address Proof – Recent Month Bank statement , Electricity Bill or Telephone Bill or Mobile Bill
Registered Address
- Proof of Premises (Any One): Telephone Bill / Electricity Bill/ Water Bill/ Mobile Bill/ Gas Bill
- No Objection Certificate (NOC) From Owner
- Utility bill would not be older then 2 month
Steps to Incorporate a Private Limited Company
The process of incorporating a Private Limited Company varies depending on the jurisdiction. However, most countries follow similar procedures. Below is a step-by-step guide to the typical process of Private Limited Company Incorporation:
1. Choose a Name for the Company
The first step in incorporation is choosing a name for your company. It is important to select a name that is unique and not already registered by another entity. In many jurisdictions, the name must include words like “Limited,” “Ltd,” or “Private Limited” to indicate that it is a limited liability entity.
2. Draft the Memorandum and Articles of Association
The next step is to draft the Memorandum of Association and the Articles of Association. These are legal documents that outline the company’s purpose, structure, and operating procedures. The Memorandum of Association typically includes details about the company’s name, objectives, registered office, and liability of shareholders. The Articles of Association lay out the rules for the company’s internal management, such as the appointment of directors, shareholder meetings, and distribution of profits.
3. Appoint Directors and Shareholders
Every Private Limited Company must have at least one director and one shareholder. The directors are responsible for managing the day-to-day operations of the company, while shareholders are the owners of the business. The shareholders may or may not be the same individuals as the directors.
4. Register the Company
Once the necessary documents are prepared, you must submit them to the relevant government agency responsible for business registration. This is typically the company registrar or a similar authority. The registration process involves paying a registration fee, submitting the company’s memorandum and articles of association, and providing details of the directors and shareholders.
5. Obtain a Certificate of Incorporation
After your documents are reviewed and approved, the company registrar will issue a Certificate of Incorporation. This is an official confirmation that your business has been incorporated as a Private Limited Company. The certificate contains essential information, such as the company’s registration number and the date of incorporation.
6. Register for Taxes
Once incorporated, you will need to register your company with the tax authorities to obtain a Tax Identification Number (TIN) or similar identification number. This is necessary for paying corporate taxes, filing tax returns, and complying with other tax obligations.
7. Open a Business Bank Account
Finally, you will need to open a separate business bank account in the name of the company. This is essential for keeping personal and business finances separate. The business account will be used for all transactions related to the company’s operations.
How Long Does It Take to Incorporate a Private Limited Company
The process generally takes 7-10 business days to complete. However, this timeline can vary based on the completeness of your documents and any additional steps that may be required for your business.
Post-Registration Compliances
After your Private Limited Company Incorporation in India, some key things to take care of include:
- Open a company bank account.
- File INC 20A within 180 day to start your business
- Appoint an auditor within 30 days.
- Hold your first board meeting.
- File annual returns and income tax returns.
- Maintain statutory registers and records.
Failure to comply can attract penalties or even disqualification of directors.
Taxation for Private Limited Companies
The income tax for companies ranges from 15% to 30%, depending on the case. There are two categories of companies as mentioned below.
A. Newly Incorporated Company: A company incorporated on or after 1st October 2019, and that does not claim any other concession, deduction, exemption under the income tax act, the tax rate is as under
| Particulars | Manufacturing Company | Other Company |
| Tax Rate | 15.00% | 22.00% |
| Surcharge | 10% on tax | 10% on tax |
| Cess | 4% on tax & cess | 4% on tax & cess |
| Effective Rate | 17.16% | 25.17% |
B. For other companies: the income tax rate is 25% in case the turnover is less than 400 Crores and 30% in all cases where the turnover is more than 400 Crores. The Surcharge and education cess at applicable rate is charged in addition to the basic income tax rate.
Are you Ready for Private Limited Company Incorporation
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