Private Limited Company Formation

What is a Private Limited Company?

Section 3(1)(iii) of the company Act of 1956, defines a Private Limited Company as--

(a) One which has a minimum of Rs. one Lakh paid-up share capital or more

(b) One which by its Articles Association:

  1. restricts the right of the transfer of its share;
  2. limits the number of its members to 50 which will not include:-
  3. members who are employees of the company; and
  4. members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees;
  5. Prohibits any invitation to the public to subscribe for any shares or debentures of the company; and
  6. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
  7. Also, the minimum number of members in a private company is two, and such a company must have the words "Pvt Ltd" as the last part of its name.

Steps to set up a Private Limited Company

Entrepreneurs, enterprises, or corporate bodies desirous of forming a new company, should follow the following elegant step by step procedures:-

  1. Selection of the type of company

    According to the objectives of the company, proposed scale of operations & activities, capital involved, etc. the promoters have to decide exactly and precisely the type of company as the private company, public company, non-profit making company, etc.
  2. Selection of name for the proposed company

    A minimum of six proposed names of the company to be formed, is selected by the promoters after scrupulous observation of various provisions, circulars, and rules of the Ministry of Corporate Affairs (MCA). On receipt of the completed application in e-Form 1A, filled in up by the promoters, the concerned Registrar of Companies confirms the possibility of adoption of the sent proposed names, such confirmation remains valid only for a period of six months. Failure of submission of the required documents from the promoters' side within this time period of six month, necessitates the submission of another application together with proposed names, and payment of the requisite fees.
  3. Apply for the Directors Identification Number (DIN) and Digital Signatures

    Before the submission of completed e-Form1A, the directors of the proposed company must ensure that they have legitimate DIN. In case they do not have the DIN, they are required to apply for the same as per the new section 266A of the Companies (Amendment) Act, 2006. Again, every document prescribed under the Companies Act, 1956, is required to be filed with the digital signature of the managing director, or director, or manager, or secretary of the proposed company.
  4. Drafting of Memorandum and Articles of Association

    Drafting of the Memorandum (M.O.A) and Articles of the Association (A.O.A), is the very next step after getting confirmation of name by the Registrar. These two documents are of the paramount importance as these contain ultimate objectives (as also shown in the e-Form) and cherished & ideal rules & regulations of the company. It should be noted that the main objects should match with the objects shown in e-Form. The M.O.A and A.O.A must be drafted very scrupulously with great care and concern, after a comprehensive and elegant counsel of the concerned experts.
  5. Stamping, digitally signing and e-filing of various documents with the Registrar

    For the incorporation of company the documents submitted to the Registrar along with the mandatory registration fees, may include Memorandum and Articles of the Association, Declaration in e-Form1, Power of Attorney, e-Form 18, e-Form 32, and copies of any other agreements.
  6. Payment of Fees

    The registration fees vary depending upon the authorized capital of the proposed company, which can be effortlessly calculated from the Ministry of Companies Affairs portal.
  7. Obtaining Certificate of Incorporation

    After the censorious observation of the required documents specified in sections 33(1) and 33(2) from the company side, the Registrar registers the memorandum and articles of the association and issues a certificate of incorporation within a period of 7 days of receipt of the documents, as per the section 34(1).

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