Frequently asked questions.

Here’s what you need to know-answers to most of the Frequently Asked Questions from Entrepreneurs, Professionals or others looking about LLP.

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Basic Questions

This section answers your basic queries on the concept of a Private Limited Company

A Private Limited Company is the most popular type of business entity in India. A private limited company is a company that is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded.

Directors are managers of the company. The form the Board of Directors. They are responsible for looking into the company's day-to-day operations.

Authorised capital shows the maximum amount of capital that a company can raise by the way of issue of shares at the present or in the future.

Paid-up capital refers to the actual amount raised by the company i.e, the amount paid by the shareholders for the issuance of shares. Paid-up capital should be less than or equal to authorised capital and cannot exceed the authorised capital while registering the company.

 

If you are struggling to find another director for your private limited company, you can choose a family member or a close relative as the director of the company. You can also start a One Person Company (OPC), where only one director is enough to start a firm.

Digital Signature Certificate (DSC) is an electronic signature in the USB Token. It is used to sign any applications or company-related documents electronically. You should keep your DSC safe, as it is as important as your physical handwritten signature.

Directors Identification Number is allotted to every director of the company from the Ministry of Corporate Affairs (MCA). It will be mapped with the Permanent Account Number (PAN) card and will be issued only once. According to the Companies Act, having more than one Directors Identification Number (DIN) is a punishable offence.

Reserve Unique Number (RUN) is a web service used for reserving a name for a new company or for changing its existing name. The web service helps you verify whether the name you have chosen for your company is unique. The applicant must provide 2 alternative names with the application. The Register of Companies (RoC) has complete discretion in the name approval. Make sure to follow the specific guidelines proposed by the Companies Act of 2013. Once the name is approved, the application to incorporate the company should be filed within 20 days.

SPICe (Simplified Proforma for Incorporating a Company Electronically) is a comprehensive form through which an application for Name reservation. Incorporation of a company. Allotment of DIN. To apply for the certificate of incorporation online submission of SPICe Form with Memorandum of Association and Article of Association is required.

Memorandum of Association prescribes the scope of operation of the Company by explaining the main objectives and the activities of the Company.

Article of Association provides the manner of operation and administration to be carried on. Both Memorandum of Association (MoA) and Article of Association (AoA) are important documents and should be drafted carefully with the consultation of a professional.

During the incorporation of a company, one of the key documents executed is the MOA subscriber sheet. Based on the undertaking by the promoters in the MOA subscriber sheet, share certificates are issued in the first Board meeting of the company. The promoters of the company must handwrite their names and the number of shares taken by them in the MOA subscriber sheet. It is important that the details be handwritten, as it makes it a binding contract on the subscribers to abide by the clauses specified in the MOA.

The Director should intimate to the Board whether he/she is Qualified or Disqualified to act as a director of the Company. As per the Companies Act, Director should submit Intimation for Disqualification in Form DIR-8 while Incorporating the Company and in every First Board Meeting of subsequent Financial years. The Board of Directors needs to take note of the same and pass the required resolution.

 

Every individual who wishes to become a director needs to provide a declaration for Appointment and Qualification in form DIR-2. Form DIR-2 is the consent to act as a director of the proposed company. It contains details of DIN/ PAN, Name, Address, Contact Details, Occupation Details of each director of a company. It is a mandatory attachment while filing SPICe INC-32 on MCA Portal.

 

While filing the SPICe INC-32 form for incorporation of a company, Form INC-9 for a declaration by Subscriber / First Director of a company needs to be attached. It is a mandatory attachment while filing SPICe INC-32 on MCA Portal.

The copies of resolutions passed at the meeting of the board of directors of a company may be required to be provided to statutory authorities while making applications on behalf of the company or in other cases, copies may be provided to any organization/individual for some business or other purposes.

Section 13 of the Companies Act deals with objective clause of the Memorandum of Association (MoA) to be submitted to the Registrar of Company (RoC) at the time of corporation of a Company. MoA provides certain kinds of business that the company undertakes.

'Ltd' represents a widely held Public Limited Company which allows the public to be a part of the Company. Whereas, 'Private Ltd' represents a closely held Private Limited Company which prohibits the public from subscribing the shares.

Every individual who wishes to become a director needs to provide a declaration for Appointment and Qualification in form DIR-2. Form DIR-2 is the consent to act as a director of the proposed company. It contains details of DIN/ PAN, Name, Address, Contact Details, Occupation Details of each director of a company. It is a mandatory attachment while filing SPICe INC-32 on MCA Portal.

While filing the SPICe INC-32 form for incorporation of a company, Form INC-9 for a declaration by Subscriber / First Director of a company needs to be attached. It is a mandatory attachment while filing SPICe INC-32 on MCA Portal.

Commencement of Business

Get to know about the declaration which is to be filed by the Directors at the Time of Commencement of Business

Form 20A is required to be filed in accordance with Section 10A(1)(a) of the Companies Act of 2013 and Rule 23A of the Companies (Incorporation) Rule of 2014. It should be declared in the Form that all the Subscribers to the Memorandum of Association (MoA) have remitted the total value of shares agreed to be taken by them in the Company's Bank Account. The form must be Certified by a Chartered Accountant or Company Secretary or Cost Accountant in practice.

The form must be filed within 180 days of Incorporation of the Company.

It is mandatory for the companies with share capital to file Form INC-20A. If the Form is not filed the following are the consequences :-

  • The Registrar may initiate action for Removal of the name of the Company, which means the Company can go into Liquidation.

  • The said company cannot borrow money and

  • The said company cannot start a business.

No Business Activity can be initiated before filing of Form INC-20A

The following are the companies that are exempted from filing Form INC-20A:

  • Companies incorporated before 2nd November 2018 i.e, before commencement of the Companies (Amendment) Ordinance, 2018

  • Companies incorporated after 2nd November 2018 Without Share capital

In all other cases, Companies are required to file INC-20A mandatorily.

  • E-Form has to be filed with the concerned Registrar of Companies (RoC) regarding the same.

  • The form should contain the declaration from the directors under Section 10A of the Companies Act of 2013 provided in the form.

  • Proof of deposit of paid-up share capital by the subscribers i.e, Bank Account statement of the Company having all the credit entries for the receipt of subscription money received from all the subscribers needed to be attached to the form. If the Bank statement is not available, valid payment proof i.e, NEFT / IMPS receipts should be attached.

  • If the company's object requires registration or approval from any sectoral regulators such as the Reserve Bank of India or Securities and Exchange Board of India, then the same should be acquired.

Visit MCA portal

Select Forms and Downloads

Search for FORM 20A

Once the form is downloaded, fill in the required particulars.

Note, once you enter the Corporate Identification Number (CIN), the other grey boxes will be pre-filled.

After filing the form, save it and login to the MCA portal

Select My Workspace> Upload e-form> Normal form> Upload

On uploading the form, the portal will ask for payment of a nominal fee.

The process will be over once you pay the requisite fee.

For filing the declaration for the commencement of business, the following are the pre-conditions:

  • That the company has a physical registered address, as per Section 12 of the Companies Act of 2013,

  • Ensure that the company has intimidated to the Registrar of Companies its registered address at the time of its incorporation. You should check the Spice Form, which was filed at the time of incorporation of the company. If you found that the company is incorporated on Communication Address then to intimate the registered address of the company file FORM INC 22 within 30 days of its incorporation to the RoC

  • Open a bank account for the company.

  • Transfer the capital from a specific shareholder's bank account. The transfer should be the same as agreed between the shareholders at the time of registration of the Company.

 

PROs AND CONs:

To meet your objective, it is necessary to know the advantages and disadvantages. Here are some pros and cons of a Private Limited Company.

The most important advantages of a Private Limited Company are:

It has the benefit of limited liability,

It increases the trust with clients,

Obtaining bank loans will be an easy process,

It improves credibility, which enables approval of tenders or proposals easily

A private limited company will also attract investors.

The main restrictions in registering a Private Limited Company are as follows:

No free transfer of shares,

Shares are not listed on the Stock Exchange, as they cannot be offered to the public and

Maximum members are limited to 200.

Requirements

So, how important are these requirements? Without these requirements a company simply do not exist.

In order to establish a private limited company, the requirements are as follows:

There must be a minimum of 2 to a maximum of 200 shareholders,

The authorised share capital must be at least ₹1Lakh,

There must be a minimum of 2 to a maximum of 15 board of directors and

The place of business must be located in India.

The following are the compliances of a Private Limited Company:

Every Financial Year: One Annual General Meeting and at least 4 Board Meeting, one in each quarter,

Accounts and Financial Statements of a Company should be audited by an independent auditor appointed within 30 days of incorporation of a company,

AOC-4 and MGT-7 are also part of annual compliances.

Heavy penalties are imposed with the compliances are not met.

The following are the required documents to be submitted for incorporation of a private limited company:

The board of directors address and Identification proof,

Latest passport size photo,

Place of business proof like rental deed and Electricity Bill Card of the office premises,

Directors Identification Number (DIN), once received,

Permanent Account Number (PAN) Card and

Director's Saving bank Account details.

The following are the documents for the registered office and statutory form:

Proof of Registered Office, latest Utility Bill, NOC from the owner of the premises, and Signed Declaration(s) from the promoters. 

To make a foreigner as a Director the following documents are necessary:

Notified Copy of Passport and

The director's Driving license

 

Procedure

Following the procedure is the official way to establish a company.

Private Limited Company is registered with the Ministry of Corporate Affairs. Name application and Registration can be done within 2 weeks if all the documents are in order. It is recommended to register a Private Limited Company with the help of a professional as it involves complicated processes like approval of name, Article of Association and Memorandum of Association, Identification of Director, Approval from local Registrar of Company, etc. Professional assistance can be required while observing several pre-requisites.

The procedure to register a Private Limited Company are as follow:

Register the company with the registrar of companies and respective authorities.

File in the details from the necessary documents in mca.gov.in

The primary procedure is to obtain name approval from the Registrar of the Company. The name must be unique, describe the business and entity type. For Example Infosys Tech Private Limited.

A digital signature is mandatory. It is used for signing online documents.

Directors must acquire a Directors Identification Number (DIN) which is a unique number given to every director of the company.

Preparation of Memorandum of Association and Article of Association which must be approved by the Registrar of the Company.

If all the documents are rectified by the RoC, the Certificate of incorporation will be approved.

It takes nearly 15 to 20 working days for a company to complete all the legal formalities and to be registered as a Private Limited.  The time limit is subject to the time taken by the Government officials to process the application.

 

Post Incorporation Compliances

Compliances are not within the bounds of incorporation. It is to be followed until the existence of the company.

Section 173(1) of the Companies Act of 2013 states that a Company should hold its Meeting of Board of Directors within 30 days of its incorporation.  

The Directors can attend the meeting either in person or through video conference or any other visual means

The Directors attending the meeting via Electronic means are counted in the quorum.

A Notice of the Board Meeting can be issued through E-means

Clear Notice, Agenda and Notes of agenda must be given at least 7 days before the meeting.

A company should hold its first Annual General Meeting within a period of 9 months from the date of closing of its first financial year and in any other case, within 6 months from the date of closing of financial year and not more than 15 months shall elapse between date of Annual General Meeting of the Company and next.

Once the Annual General Meeting is completed, proper Annual filing must be proceeded.

  • The first auditor of the Company shall be appointed by the Board of Director within 30 days from the date of registration of the Company.

  • In case of failure to do the same, it shall be informed to the members of the company who shall within 90 days arrange an Extra-ordinary General Meeting can appoint an auditor and he shall hold the office till conclusion of the first Annual General Meeting.

  • It is necessary to take a proper consent letter from the Auditor before his appointment and to pass proper Board resolution.

Filing of Form ADT-1 is also an mandatory process.

  • Visit MCA portal

  • Select Forms and Downloads

  • Search for FORM ADT 1

  • Once the form is downloaded, fill in the required particulars.

  • Select My Workspace> Upload e-form> Normal form> Upload

  • On uploading the form, the portal will ask for payment of a nominal fee.

The process will be over once you pay the requisite fee.

A company is required to maintain certain statutory records and registers as specified under company laws.

Some of them are as follows:

  • Register of share transfers, Register of members,

  • Register of Directors,

  • Incorporation documents of the Company,

  • Resolution of the meeting of the Board of Directors,

  • Minutes of Board Meeting and Annual General Meeting,

  • Register of investment, Register of shareholders and debentures, etc.

All such registers and records are to be kept at the registered office of the company and shall be open for inspection to its members during the business hours.

Company will maintain the following mandatory registers:

  • Registers of Directors,

  • Registers of Director shareholding,

  • Registers of members,

  • Registers of transfer and

  • Registers of related party transactions, etc.

Winding Up

Several principles are to be followed to initiate the process of winding up just like incorporation.

Section 270 of the Companies Act prescribe the below mentioned three ways, in which a company may be wound up:

  • Winding up by the court,

  • Voluntary winding up and

Member’s Voluntary winding up and
Creditor’s Voluntary winding up.

Winding up subject to supervision of the court

Section 304 of the Companies Act covers the modes of voluntary winding up of a company as follows:

It may take place by:-

  • By passing an ordinary resolution in the general meeting if

(i) The period fixed for the company by the articles has expired; or

(ii) Some event which company is to be dissolved, has happened.

  • By passing a special resolution to wind up voluntarily for any reason whatsoever.

Within 14 days of passing the resolution, whether ordinary or special, it must be advertised in the Official Gazette and also in some important newspaper circulating in the district of the registered office of the company.

Voluntary winding up of shall be deemed to commence on the date of passing the resolution under

  • Conduct a Board meeting with 2 directors and thereby pass a resolution with a declaration given by directors that they are of the opinion that company has no debt or it will be able to pay its debt after utilizing all the proceeds from the sale of its assets.

  • Issues notices in writing for calling a general meeting proposing the resolution along with the explanatory statement.
    In General Meeting, pass the ordinary resolution for winding up by ordinary majority or special resolution by 3/4th majority. The winding up shall start from the date of passing the resolution.

  • Conduct a meeting of creditors after passing the resolution, if the majority of creditors are of the view that winding up is beneficial for all the parties.

  • Within 10days of passing the resolution, file a notice with registrar for appointment of liquidator.

  • Within 14days of passing such resolution, give a notice of the resolution in the official gazette and also advertise in the newspaper.

  • Within 30days of general meeting, file certified copies of ordinary or special resolution passed in general meeting.

  • Wind up the affairs of the company and prepare the liquidators account and get the same audited.

  • Conduct a General Meeting of the company.

  • In that meeting, pass a special resolution for disposal of books and all necessary documents of the company, when the affairs of the company are totally wound up and it is about to dissolve.

  • Within 15days of final general meeting of the company, submit a copy of accounts and file an application to the tribunal for passing an order for discussion.

  • If the tribunal is of the opinion that the accounts are in order and all the necessary compliances have been fulfilled, the tribunal shall pass an order for dissolving the company within 60 days of receiving such application.

  • The appointed liquidator would then file a copy of the order with the registrar.

  • Once the order passed by the tribunal is received, the registrar will then publish a notice in the Official Gazette declaring that the company is dissolved.

Section 272 of the companies Act states about winding up by the Court. A petition for winding up of a company shall be presented to the Tribunal by the following authorized persons incorporated under this Act of 2013:

  • The Company,

  • Any creditor or creditors, including any contingent or prospective creditor or creditors,

  • Any contributory or contributories,

  • All or any of the persons specified in the above clauses together,

  • The Registrar,

  • Any person authorized by Central Government in that behalf; or

  • In a case falling under clause (c) of sub-section (1) of Section 271, by the Central or State Government.

Windings up with the intervention of the court are ordered where the voluntary winding up has already commenced. It is the voluntary winding up but under the supervision of the court. A court may approve a resolution passed by the Company for voluntary winding up but the winding up should continue under the supervision of the court.

 

When can the court issue an order for voluntary winding up?

The court will issue such an order only under the following circumstances:

  • If the resolution for winding up was obtained by fraud by the company; or

  • If the rules pertaining to winding up are not being properly adhered to; or

  • If the liquidator is found to be prejudicial or negligent in releasing the assets of the company.

The Court may exercise the same powers as it has in the case of compulsory winding up under the order of the court.

Compliances

When compliance is done well, it increases efficiency and effectiveness. It is not designed to generate 'no'. It aims for intuitive 'yes'.

There are no mandatory compliances for this Quarter.

The compliances to be filed on Q1 are:

Board Meeting: Section 173 of the Companies Act and Secretarial Standard - I are the aspects that are to be incorporated in the Board meetings.

Maintenance of Statutory: Section 88 and other sections are to be engulfed in maintenance of statutory Registers.

Appointment of Auditors: Section 139 of the Companies Act states about appointment of auditors. Accordingly, E-FORM ADT-1 must be filed.

The compliances to be filed on Q2 are:

Receipt of MBP-1: Section 184(1) of the Companies Act lays down provision for Receipt of MBP-1. Accordingly, FORM MBP-1 should be filed.

Receipt of DIR-8: Section 164(2) and 143(3)(g) of the Companies Act lays down provision for the receipt of DIR 8. Accordingly, FORM DIR 8 should be filed.

Half-yearly Return: Section 405 of the Companies Act lays down provision for the half yearly return. Accordingly, MSME-1 should be filed.

Yearly return (June): Section 73 Rule 16 of the Companies Act states provision for Yearly return. Accordingly, E-FORM DPT-3 must be filed.

Q3 is the month of financial year. The compliances to be filed on Q3 are:

Directors Report: Section 134 of the Companies Act states provision for the Directors Report.

Notice of Annual General Meeting: Section 101 of the companies Act and SS 2 are the provisions that are to be covered incorporated in Notice of Annual General Meeting (AGM).

Sending of Notice: Section 101 of the Companies Act and Secretarial Standard must be incorporated in sending of notice.

Circulation of Financial Statement and other relevant document: Section 136 of the companies Act lays down provisions for circulation of Financial Statement and other relevant documents.

Annual Form: Rule 12A of the Companies Act states about the Annual form. Accordingly, DIR-3 KYC should be filed.

The compliances to be filed on Q4 are:

Annual Form: Section 137 of the Companies Act lays down provision for Annual Form. Accordingly, E-FORM AOC-4 must be filed.

e-fORM Filing requirements: Section 92 of the Companies Act states filing of E-FORM MGT-7.

Certification of Annual Return: Section 92 of the companies Act lays down provision for Certification of Annual Return. Accordingly, MGT-8 must be filed.

 

OTHER:

So, what is left to know about a private limited company?

  • Applications for Shop Act license as per Shop and Establishment Act, within 30 days, if there is employees in the office,

  • Registration of Goods and Service Tax (GST), if applicable,

  • Registration of professional tax, within 30 days

  • Provident Fund and Employees State Insurance, if applicable

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