I have seen many people speaking that they want to Register a Private Limited Company for their business, and they do inquiries at many sources, but even collecting the information from all sources, they do not come to have correct and complete information about registering a Private Limited Company.
In this article, you are going to fully educated about how to register a private limited company for your business covering all the aspects.
Running a business without registration has no future, in spite of having good revenue, your business will not be considered a legal business and you will not be able to any financial benefits from the government, and other finance.
On the other end, if your business grows with good stats, and you need external financial support, your application will not be accepted by any bank and finance companies due to having an unregistered business.
So, if you are planning a lifelong or a very long-term business, you must register your company according to the government norms.
You might be thinking about how to register a business or company, right?
There are four options to register a company presenting your business and I am going to explore all those ways in this article ahead.
- Individual or Propritership
- One Person Company (OPC)
- Private Limited Company
Invdiviual or Propritership Registration
You can register your company as a Proprietorship, where you will be managing it yourself, all the transactions will be done in your name.
Checks will be issued by your proprietor firm’s name, but you will be paying the tax on your individual name.
Many Professionals use the Propritership for their business-like, Charter Accountants, Engineers, Consultants, Interior Designers, Architectures, etc…
It sounds too good, but before making your mind to register your business with a proprietorship, let me educate you about its big drawback.
Properitership Holds Unlimited Liabilities of Owner
If you don’t know what is Liabilities, then let me explain to you, for example, if you have borrowed a loan from the bank which you are paying in installments, it’s called your liabilities.
Properitership holds the unlimited liabilities of the owner, it means if you have borrowed a loan from a bank or finance, if you are due to pay any amount to anyone, or supplier, your liabilities are unlimited.
Let’s suppose you have borrowed a loan from a bank to expand your business and due to any reason you could not repay that amount, then the bank can attach your personal property to recover the lending money.
OPC – One Person Company
One Person Company holds only one shareholder or one owner to run the business and you must declare a minimum of one nominee.
A nominee stands for the upcoming owner of that company after the current owner, and as the nominee becomes the owner, he is fully allowed to decide whether he wants to continue the company or not.
In the other forms of companies, if the current owner loses the permanent availability, the company is kept continued by changing the owners and shareholders.
If the next owner of One Person Company wants to discontinue the company, he can do so.
Now if we talk about the directors, you can keep a minimum of 1 director and a maximum of 15 directors, if you want to increase the number of directors to more than 15, you can do so by passing one board resolution as well.
Who can Register an OPC?
Any person who is a resident of India can apply for OPC and establish the same and the nominee also must be an Indian Residence person.
One person can register only one OPC, he is not allowed to run multiple one-person companies, he can hold only one OPC.
One more very important thing that I want to share is that you can not become a nominee in more than one OPC.
Why OPC is the Most Beneficial?
In OPC, you are supposed to get all the benefits of a Private Limited Company in terms of Authorized Capital, MOA, AOA, no minimum Paid-up capital, etc…
Your company name will be suffixed by a private limited, for example, Xyz Abc Def Private Limited Company.
- Limited Liabilities
- Lesser Compliances
- Minimum Hurdles to Start
- Raise VC by Converting into Pvt Ltd Company
- Only one Share Holder
- Can not Issue Employee Stock Options
Partnerhip Firm Registration
If you are two or more to start and run the business and you want to register a business that represents all the people as owners, you can register your business as a partnership firm which requires a minimum of two people as Directors.
Let me explore more this concept, let’s suppose there are two people having names A and B as the directors of a company named XYZ.
Now let’s assume that A has 70% ownership, and B has 30 ownership of the partnership firm, here also the same fundamentals will be applied to proprietorship firms in terms of transaction and tax paying.
Disadvantage of Unlimited Liabilities With Partnership Firm
Here is also the same drawback of Unlimited Liabilities, if the company carries any liability, borrowed any loan, and if the company gets failed to fulfill the liabilities, then the bank or lender can attach all the personal property of each director of that company.
Let’s Explore this Concept with an Example.
XYZ company has borrowed a loan of Rs. 1 Crore and it fails to repay the lending amount, now what will be happened in the case of the partnership firm.
Director A has 70% ownership of the Company
Director B has 30% ownership of the Company.
Now, here you need to pay more attention to understand the concept of the partnership firm.
If B who is holding less ownership in the company has more assets than A, then his all assets will be attached until the amount of all assets touches 1 crore.
If A has the total assets worth 20 lakh rupees and B has the assets of 1.5 Crore rupees, then the bank will attach the properties of 20 lakh from A and 80 lakh from B.
The bank does not concern about the percentage of ownership of directors in the company, it concerns with only recovering the full amount.
Private Limted Company
The Private Limited Company is the safest way and approach to run a business with very low risk.
If you are going to start a new business with legal registration, you should opt for this option to carry your business long term.
As this article is centered on the information of Private Limited Company, I am going to explain each aspect about what is a private limited company, how to register a private limited company, and covering all the supplement aspects step by step.
What is a Private Limited Company
A Private Limited Company can be registered with ownership of two or more people and it holds limited liabilities.
It means if you have your business or company as a private limited company, and if you fail to repay the lending money to the bank or finance, the bank is limited to recover the lending money only by attaching the assets of the company.
It can not touch the personal property of any of the owners of the private limited company, and it’s the biggest benefit of the private limited company.
Private Limited Company is one of the oldest legal entities formats in India. Every big company was a Private Limited Company first and then converted into a big company.
After growing with a high exponential graph, any company is listed in the stock market, then it becomes the limited company from the private limited company.
Register a Private Limited Company
Registration of a private limited company is processed by few steps which you need to follow in terms of registering a private limited company in India.
There are only two minimum requirements to initiate the process of private limited company registration in India.
- Minimum Two Directors
- Authorized Share Captial of 1 Lakh Rupees
Some people get confused here that he is only one and running his own company, how can he introduce a second director if he does not need, right?
You can introduce any of your family members as a second director, who will not be performing any active role in your business model, he or she will be an active partner just on paper.
The second Confusion is about the Authorized Share Capital of 1 lakh rupees, people seem that they have to invest this amount in their business, which is the wrong concept.
It’s just an amount which you need to mention on paper which you will be keeping in your current account.
Now, let’s go through the private limited company registration process, the process of registration for a private limited company is not too difficult, you just need to be clear with each step and understand it first.
Documents Required to Register a Private Limited Company
As everything in India is processed on the basis of the document, and existence is proved by the document, same way, you need certain documents for the private limited company process in India.
- Basic KYC Documents of The Directors
- Address Proof of Office
As a KYC document, you can provide your PAN Card which is acceptable in each segment of government.
On the other side, you can provide the Electricity bill as an Address Proof.
Do I need to rent a space to provide an address proof for my Business?
No, the location or space doesn’t matter, you do not need to rent any other space other than if you already have one.
If you want to start a business from home, you can provide the address proof of your home, it’s totally valid.
You do not need to have any commercial properties.
What is The Process to Register a Private Limited Company in India?
Before exploring the process of registration of a private limited company, I want to mention one thing for your benefit that you should not do the online company registration in India yourself.
The reason behind this advice is that all the forms used during the private limited company registration process require the signature attestation of a legal CA, CS, or Lawyer.
The second reason behind this is that it requires much expertise, sometimes, few people try to process the private limited company registration, and they are stuck in middle, and they lose all the fees paid to the government.
This process is not as easy as getting a GST number or filing a tax return, you are advised to appoint a CA to process the private limited company registration.
Firstly you need to apply for the Class 3 DSC with USB Tokens with the information of the directors’ inclusion of your private limited company and then apply for a DIN Number.
The next step is to apply for the Name Approval of your Private Limited Company where you will be sending multiple names and they will check all of them with their parameters and will approve any of them.
Can I keep the Brand Name and Company Name Different?
Yes, Definitely you can keep the brand name and company name different. For example, you know Paytm, but it’s not a company name, it’s a Brand Name, the Company of Paytm is One97.
You can introduce different brand names which undergo the one company and you can run multiple businesses under one private limited company as well.
Moving further you need to sign the MCA Form and need to create AOA and MOA and file them after implementing the attestation of CA.
Then you will receive an Incorporation Certificate with PAN and TAN.
After receiving an Incorporation Certificate, it’s mandatory to open a Current Account in any bank which will be performing all the Transactions done for your business.
Cost or Fees to Register a Private Limited Company in India
Excluding a business start-up cost, you are supposed to pay the two types of Fees.
- Government Cost
- Professional Fees by CS/CA/Lawyer
Government Fees are almost the same, but yes, it may occur a minor difference between the respective states.
For example, MP, Kerala, and Punjab have higher stamp duty, so the government of these states can charge you a little bit high for private limited company registration.
Talking about the Professional Fees charged by Lawyers, CA, or CS, it also differs state by state and district by district.
The normal and average range of these fees is between 8,000/- to 17,000/- and it depends on which professional you are going to hire.
One important thing I want to mention for you that make sure that whenever you are going to hire any professional for the registration for a private company, they are providing you all the required forms, and certificates of your business.
Some professionals will make your set up a Pvt ltd company at a low cost but will be missing some important documents which may be the cause of chaos generation in the future.
The registration process of a private limited company in India is neither difficult nor lengthy if you have proper knowledge of it, and one thing I have mentioned in the explanation is that never do it yourself.
It’s too recommendable to hire any professional to set up the registration of a private limited company because if you are stuck anywhere in the middle of registration, you will have to repeat the process from scratch and you will lose all the fees paid to the government.
In a nutshell, if you really want to start a private limited company in India, you can start it with around 20,000/- which is a very minimal cost to build our own private limited company.