Currently, Private Limited Companies make up to almost 96% of the total companies in India. Till November 20, 2023, there are 25,99,660 private limited companies registered in India. The huge number of company registrations amounts to the ease and benefit provided by India. Though registering a company in India is not mandatory but the company registration offers significant benefits to the founders as well as stakeholders. By the end, you will be able to understand the key legal requirements to register a private limited company in India, along with its compliance obligation and much more.

What is a Private Limited Company?

In India, there are several companies that can be registered. A Private Limited Company is one of them. A Private Limited Company bearing the suffix of ‘Pvt. Ltd.’ at the end of its name is a separate legal entity registered under the Companies Act, 2013with the Registrar of Companies (ROC). The main feature of this type of company is that it offers limited liability protection to its shareholders; it means that the liability of the shareholders is only up to the extent of shares held by them, and the personal assets of shareholders (owners) are protected from the obligations of the company. The company can be owned by multiple shareholders and managed by appointed directors. It is separated from the owners of the company, and its legal existence continues even if there are changes in the ownership or management, which provides security and stability to the company.

Why Should You Register a Private Limited Company?

There are several compelling reasons why forming a Private Limited Company can be beneficial:

1. Limited Liability Protection

As a private limited company, the liability of its shareholders is restricted to the unpaid amount on their shares. This means that if the company faces financial distress or legal liabilities, the personal assets of the shareholders (directors or members) will not be at risk.

2. Separate Legal Entity

A company is a juristic person in the eyes of law. The legal entity of the company is distinct from its shareholders and directors. The company is capable of entering contracts in its own name, it can sue and can be sued in its own name. The liability and credibility of the company is separated from its stakeholders.

3. Perpetual Succession

The existence of the company is independent of the existence of its shareholder or director. Unlike a partnership or sole proprietorship, the private limited company enjoys a perpetual succession, which means that the existence of the company is affected by the death, insolvency, or retirement of any shareholder or director. This perpetual succession guarantees the continuity of the business even if one of the company’s stakeholders leaves the company.

4. Easy Transferability of Shares

Registering a company in India offers easy transferability of shares means that shares of the company can be transferred from one shareholder to another. The leverage smoothens out the transaction in management of the company and later enhances the flexibility in business operations of the company.

5. Access to Investments and Funding

Capital can be easily raised in a registered Private Limited Company offers as Equity shares can be easily issued by company to raise fund. Issuing equity shares attracts potential investors and venture capitals to invest in the company.

6. Increased Trustworthiness

Registering a Private Limited Company enjoys greater market credibility as compared to other business structures. The greater credibility leads to increased trustworthiness among investors. The advantage is gain by the company due to its registration. Registering a company makes the company legally recognizable and shows that it meets with the regulatory standards.

Checklist for Private Limited Company Registration in India

Documents Required for Pvt Ltd Company Registration in India

Company Registration Process in India

The registration process for a Private Limited Company is straightforward but requires compliance with several legal and procedural requirements under the Companies Act 2013. Below are the step-by-step processes involved:

Step 1: Obtaining a Digital Signature Certificate (DSC) and Director Identification Number (DIN)

Before registering the company, the Directors of the proposed Private Limited Company are mandated by Law to two critical documents that are as follows:

• Digital Signature Certificate (DSC): This certificate is crucial for signing the documents electronically during the registration process of company. DSC ensures the authenticity of the signatures of the directors on electronic filings and save the company from potential frauds.
• Director Identification Number (DIN): As per Section 153 of the Companies Act 2013, every director of a company must obtain a DIN. This is a unique identification number issued by the Ministry of Corporate Affairs (MCA). It helps in tracking the directors in the company and ensures the accountability and transparency of the directors towards the company.

Step 2: Reserve a Company Name (Section 4 of the Companies Act, 2013)

The second most essential step is to reserve the name of the company.  The name must be unique, not similar to any existing company, and should not infringe on any registered trademarks. The law mandates the company name should reflects the business activity of the company and it should comply with the naming conventions laid down by the Registrar of Companies (ROC).

• The proposed name should be checked for availability using the MCA portal.
• You will need to submit a Name Reservation Application online through the MCA’s RUN (Reserve Unique Name) service.

Step 3: Draft the Memorandum of Association (MOA) and Articles of Association (AOA)

The next crucial step is the submission of the Memorandum of Association (MOA) and the Articles of Association (AOA), which are critical documents that need to be drafted as part of the registration process:

MOA: Memorandum of Association is the document that outlines the main objectives, purpose, activities, and scope of the company. It specifies the activities are being taken by the Company. The document ensures that the company operates within the scope and objectives of the company as outlined. It is pertinent to note that once MOA is drafted, the MOA, it cannot be amended. Directors and shareholders are mandated by law to sign the MOA.

AOA: Article of Association is the document that lays out the rules and regulations for the internal management of the company. It lists the rights and duties of directors, stakeholders, and individuals. It contains-

1. The company name and form of business
2. Purpose/Objective of the Company
3. Capital structure of the company
4. Corporate governance of the company
5. Administration of the corporate records.

It is pertinent to note that the changes can be made in the AOA of the company with the approval of the directors. Directors and shareholders are mandated by law to sign the MOA.

Step 4: File Incorporation Documents with the Registrar of Companies (ROC)

Once the MOA and AOA of the company are drafted and are ready to be filed, the next step is to file them online through the MCA portal with the appropriate fee with the following necessary documents with the Registrar of Companies (ROC):

• Identity Proof of Directors and Shareholders: This can be a PAN card, passport, or voter ID.
• Address Proof of Directors and Shareholders: This can include Aadhar cards, bank statements, or utility bills.
• Proof of Registered Office Address: This includes documents the registered office of the company, if the registered office of the company is taken on rent then it shall include the rental agreement or electricity bill of the company.
• Consent from Directors: Each director of the company is mandated to consent to their appointment and sign that consent form.