Incorporating a Private Limited Company in India

November 9, 2008 at 10:31 am | Posted in Company incorporation, Entrepreneur, Legal, Private limited company, Startup, Strategy | 58 Comments
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Lot of early entrepreneurs and wanna-be entrepreneurs have a basic question in their mind on How do you incorporate a Private Limited Company? What are the various requirements, formalities, costs, check-lists, processes associated with it?

Here I am writing my experiences while incorporating ‘iStrait Software Solutions Pvt Ltd’, in Bangalore (Karnataka). LifeMojo is the name of the product we have, whereas iStrait is the company name.
files

Please note that the information here might not be correct. Its just what I know ;)

In India, a private limited company incorporation, with an authorized capital of Rs 1 lac, will cost you about Rs 15k + the CS professional fee, which varies between 5k-10k. The whole process takes 2-4 weeks.

The Rs 15k here includes Rs 4.8k, which you pay as a tax/duty for the authorized capital of Rs 1 lac.  Rs 1 lac is the minimum authorized capital you need to commit to incorporate the company. It also includes the charges for DIN, Digital Signatures and all the paper work, which is mentioned below in details.

You do not need to invest the entire Rs 1 lac immediately. However, It is the total liability from all the share-holders towards the company, which you can pay anytime later.

Steps for incorporating a company:

1. Get at least 2 directors

Please note that there is no relation between the directors and shareholders. They might be same people or entirely different people. Shareholders appoint directors, who run the company.

You need at least 2 people who will become the first directors of the company. Later, others can be appointed as additional directors. Before becoming a director you need to get a DIN (Director Identification Number). For this required documents are: Address proof, Photo ID Proof, PAN Card and 3 photos.  It costs around Rs 1000 per DIN. As I am writing this article, all the DINs in India are issues from Noida, Delhi. The application is physically couriered to Noida and you get your DIN dispatched from there.

Along with this, at least one of the directors needs to obtain a Digital Signature. This process can go parallel with getting the DINs. A digital signature will cost you around Rs 2500. It is used for uploading various documents to ROC (Registrar of Companies) website.

2. Get a name

You need to think of a name for the company and inform your CS with a list of preferences you have. The CS will get the name blocked/approved as per the availability.

To check the availability, go to http://mca.gov.in/ > “Other Services”  > “Check Company Name”. The law says it should be non-abusive, non-offensive and blah-blah. By the way, “iStrait Software Solutions” and “iStrait Technologies” are treated as two different names.

Ideally, keep the company name different from the product/website name you have. The reason is that the product/website names keep changing. You might even change your business or your domain. But the company stays!

Yes, this adds to a little bit of confusion amongst who hear about you. In our case, it was like “So what is iStrait and what is LifeMojo? Are these two different companies?” But the solution to this is that you never brand/market/advertise yourself with the company name. Always use your product name. Carry your product name on your business card, t-shirts, website etc. Use the company name only on legal/financial documents and in the footers :)

The well known job-portal http://www.naukri.com is a product of “Info Edge India Ltd.”. Not many people have heard about the exact company name. They always market themselves by the product name.

3. Get it registered

Once the name is approved and the DINs/Digital Certificates are ready, you need to apply for company registration. You need to provide a registered office address. For a software kind of company (non-polluting) an apartment as a registered address is also OK. But, you need to put a small board once the company is incorporated, as there might be address verifications etc. when you will go for various things like Bank Account, Service Tax number etc.

This is mostly an online process. Here are couple of terms you should know, while applying for registration:

1. MOA (Memorandum of Association): This is a document your CA will prepare, which will have the basic details of a company and the activities with in which the company can function. There will be certain primary objectives and a lot of secondary objectives. Usually the CS guys will put literally every possible business in India in this document, so that you have a scope of changing your business later ;)
Better have a look at the MOA of a company similar to you.

2. AOA (Articles of Association): This is a document which will have rules relating to the management of company’s internal affairs. There are standard templates available for this as well.
You get certificate of incorporation from the ROC, mailed at your registered address…..and you are done! You can commence your business and use the company name as a legal entity.

4. After company registration

– Get your company PAN card.

- Get a rubber stamp. Get letter heads with your company logo. You can chose whatever logo you want. ROC has nothing to do with that.

- Get a current bank account in the name of the company. Try your best to incur all expenses from the company account and receive all the cheques in the name of the company only.

- If you provide any service, you need to charge a service tax and pay it to the state-government. You should get a service tax number before that. Service tax is to be paid to govt on a monthly basis and filed half-yearly.

- If you sell/ship a product, you need to charge VAT and pay it to the state-government. Again, you should get a VAT number before that. Getting a VAT number is quite tedious process as compared to Service Tax number.

- Get a Shop & Establishment License from the state-government. You need to file yearly returns with them.

- If you pay more than 20k per financial year, to a vendor, you need to deduct Tax at source (TDS). This has to be paid to the government on monthly basis and filed quarterly.

- Deduct TDS from your employees’ salary as well (if taxable).

- Pay professional tax for your company and your employees. (Rs 2500 per year for the company and for the employees, it depends on their salary (Usually, Rs 60-200 per month))

PS: Following all these processes prevents you from lot of trouble you might get in future and adds credibility to your company.

Write to me at himanshu[at]lifemojo[dot]com or drop it here itself, if you have any query/comment.

Cheers and all the best!

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  1. I hope the Limited Liability Partnership would be a better choice for Indian Startups once the bill gets passed.

  2. [...] Incorporating a Private Limited Company in India Posted November 9, 2008 Filed under: Uncategorized | Tags: company incorporation, legal, Startup | Himanshu has written a great post on this much asked topic on “Incorporating a Private Limited Company in India”. If you are new to the startup world or are planning to enter it soon, then do read it here. [...]

  3. [...] See the original post [...]

  4. [...] Legal, Partnership firm, Private limited company In my last post, I shared my experience on Incorporating a Private Limited Company in India. Here I am going to mention the difference between a private limited company and a partnership [...]

  5. sir i m going to take over a private ltd. company n i hv paid some amt n had made an agreement that from above date all operations related to this company are uner my supervision. i just want to know the procedure of change in directors.
    your sinserly
    ANUJ BADALA

  6. @anuj
    I am not a expert on this but as far as I know, to change the directors, you need to file a Form 32 with RoC. Form 32 will be used for appointment of new directors and removal of existing directors as well.
    You can consult a CS for more details.

  7. Well, A nice Write Up. It wud help many young entrepreneur who are in process of Incorporation, as our Govt. Portals are filled with Legal language

  8. Well, would it be possible for you to elaborate how to get MOA and AOA registered? I have a perfect drafting in digital format, what next?

  9. @rahul
    I took the help of the CS. Those guys did get the registration stuff done.

  10. Dear Himanshu,
    Many thanks for sharing your experience. I have just incorporated a private limited company in Delhi. I have not received the certificate of incorporation even after one month of incorporation. My CA is saying ROC will send it by post. I had given a power of attorney for incorporation to the company secretary, who was authorized to receive such documents on directors’ behalf. But he is saying that he has not received the original and it is sent by post to company’s registered address by ROC. Can you share your experience on this issue.
    Warm Regards
    Naiyer Mallick

  11. @Naiyer
    Yes the certificate of registration is sent by post to company’s registered address.
    In our case we received the certificate with-in a few days. One month is a very long time. You need to ask your CA to check with ROC.

  12. Hi Himanshu,

    Ur experience is very useful for me.

    keep it up….

  13. how do you find a reliable, rather a credible CA. As I have talked to many people they say CA’s start kind of blackmailing by saying “sales tax people have come..excise people have come…etc.”.

    How to find a credible CA?

  14. @vijay Thanks!

    @shashank Well, I dont think all CAs are like that. In fact most of the CAs I have met are pretty good and honest.
    You can find a credible CA from reference only. So ask other people running their companies about how is their CA.

  15. Hey Himanshu,

    Back again.. My CA told me that Govt Of India doesnot encourage Pvt Lts company with 1 lac Auth Capital (due to mushrooming of companies) and has asked me to go fro a 10 lac Auth capital, in which case it might cost me (50 – 70K) This is what he says. Is this correct ? Does the amount differ based on the Auth capital.

    Else, if I want to the sole owner, since I dont want to burn my cash in this process, what is the process ?

    Thanks again !

    Dhruv

  16. @dhruv
    You need to pay a fee to ROC which is propotional to your Auth capital. (~3-4 % of the auth capital), thats why your cost in increasing with 10 lac auth capital. Rs 1 lac auth capital is totally acceptable. I have seen people getting it done recently. Or you can go for an LLP as well.

  17. Hello Himanshu,

    Thanks for your quick response. LLP sounds a great option for now.

    Its kind of embarrassing but can you connect me to a CA in Bangalore. My CA seems to be misinformed or trying to dupe me.

    Cheers- Dhruv

  18. @dhruv
    Contact Mrs Sharda Balaji at Novojuris.com. You can mention my name.

  19. nice post and many others here !!
    Got reference to these from pankaj goyal –> varun .

    Thnkx 2 u guys.

  20. Hello Mr.Himanshu

    We two friends are planing to start a construction company in which we are in plans to buy a residential plot/s and built them into floors/appts. and then sell them
    It is possible to buy the property on own name but we are confused what to do and as per our calculations one project will give the profit of approx. 25lacs and if the proerty is on our own name then we will need to pay lot of tax, somebody told us to open a company and do the business in that by doing so we can save the tax. Is it possible?

    Please advice what to do and if we open a company do we need to take sales tax no. or vat no. or service tax no. etc.

    will look forward.

    Thanks

  21. @vipin Thanks!

  22. @abhinav
    Its better to start a commercial entity. Be it a company or a partnership firm.
    An individual pays taxes first and then spends the money. A company or a firm first incurs the expenses and then pays tax on the remaining money. This is the only diff because of which you save tax.
    If you are selling products sales tax no. (or vat no.) is required. If you are selling services service tax no. is required.

  23. Could talk to Sharda.. thanks Himanshu !

  24. Hi,I want to open a pharma company in hyderabad.It would be a pvt limited comapany.
    Can u give me the procedure of getting licence.
    anand

  25. @Anand
    I am sorry but I am not sure how to get a license for a pharma company.

  26. Dear Sir,
    I was looking for some info on company incorporation and found the info here very useful, many thanks to you!!!

  27. @Deepa

    You are welcome!

  28. I want to know that after opening a pvt ltd company can i invite investment from public between 10 K to 50 K . Do I need a permission to accept investment. I am planning to open a pvt ltd in april 2010 and want to ask my relatives and friends to invest in it. I have already a Firm registered from Feb 2006 and I am owner of it.

    Please reply ASAP.

    Regards,
    Sarvesh Gautam

  29. Is there any special procedure for “Terms of Use”, “Privacy Policy”, “Copyright notices” that needs to be done?

  30. @Mayank
    “Terms of Use”, “Privacy Policy”, “Copyright notices” etc depend on your product/service. You just need to understand the legalities of your product/service and get them written. You can take the help of a lawyer for that.

  31. @Sarvesh
    You can get as many share holders as you want. Your relatives/friends etc. You would be giving those shares with permission from all the directors.

    This is not a public investment. This would still be a private limited company.

  32. @ Sarvesh
    @ Himanshu

    Nice post Himanshu and great enthusiasm in answering questions.
    I would like to differ on the point taken by Sarvesh.

    The max number of shareholders in a pvt ltd Company is 50.
    So you cant get as many shareholders as you want.

    If you want more than 50, form a public ltd. Company or convert your existing one to public ltd. Company.

    Best regards

    CA. Bhavesh Savla

  33. Also the liability of the shareholders becomes unlimited from limited if the number of Directors remain below the minimum limit for more than 6 months.

    For all your queries related to incorporation of Pvt. Ltd/ Public Ltd Company or LLP, you can contact at ca.bhavesh.savla@gmail.com

    Questions will be answered sooner or later but grant some time, please.

    Best regards

    CA. Bhavesh Savla

  34. Dear Khurana, this is very useful article . thank u.

  35. Dear Sir,

    I want to know how much expensive will be there to form a private limited company. including Din (certificate, Digital signeture, incorporation certificate, rubber stamp, registration office and paid up capital or authorised capital + etc any other expenses) plz tell me sir how much rupees will be needed for it…

    Thanking you, Your’s faithfully,
    Shibu chandra Mondal
    Mob: 09304088764

  36. Hi Shibu,

    I have already mentioned the cost and all in the post.

    In India, a private limited company incorporation, with an authorized capital of Rs 1 lac, will cost you about Rs 15k + the CS professional fee, which varies between 5k-10k. The whole process takes 2-4 weeks. The Rs 15k here includes Rs 4.8k, which you pay as a tax/duty for the authorized capital of Rs 1 lac. Rs 1 lac is the minimum authorized capital you need to commit to incorporate the company. It also includes the charges for DIN, Digital Signatures and all the paper work, which is mentioned below in details.

  37. Hi,
    Thanks for all the useful information. I want to start a partime business but with a limited liability as there is lot of risk involved, so my basic question is can a person employed in one company be a director of the other company. Is it legal to apply for a company incorporation by him.
    Kumar

  38. @Kumar

    There is no law around this. Depends on your employment agreement.

  39. HI Himanshu,

    i am in process of incorporating a pvt ltd company, i am planning to do export of two different products such as orthpadic implant and Aids (medical items) and home furnishing items.

    can it be possible to do two different products in the same company name ?

    awaiting your valuable response

    Regards
    Varun

  40. who can be shareholder for my new company? and what is the process for join him with company? means shareholder form?what is minimum amount for share for y pvt ltd?

  41. @Raj
    Sorry I did not understand your question.

  42. @Himanshu, great work. Thanks for sharing the information.
    Can you suggest if I have to pay Professional tax for paying stipend to interns and temporary employees(consultants)?

  43. Good article. Keep it up !

  44. @Ravish
    No. The professional tax is applicable for employees only.

  45. Dear Sir,
    Thanx for the posts packed with informations.
    I ve a querry, I am running a pvt ltd company & directors are myself & my wife.
    Please explain me about professional Tax for Company , for Directors & for Employees

  46. my state is Maharashtra

  47. Hello Himanshu,

    It was great experience reading the blog.
    Now I am looking forward to incorporate a Software business this month.
    I hav some queries:::
    1.Are there any regular taxes to be paid even if i don’t do business.
    2.What are the taxes i have to pay on regular basis(monthly,yearly etc etc) if there is some business done
    3.If my company go in losses,what are the taxes to be paid.

    And a suggestion to you..Kindly write a blog on the topic “After Incorporating a business what should I do?”

  48. If the company is formed with 2 directors / promoters, 1st promoter brings more finance and other brings his great expertise; hence 1st having 51% and other 49% then I would like to know the situations in which these percentages plays a real role.

  49. Hi Himanshu,

    You have provided a very good article.
    Your patience to answer questions is nice. Thanks for your service and time.

  50. Thanks Himanshu,

    Nice Blog And Nice Your Work

  51. how did you get DSC (digital signature)

  52. & also, we are planning to go for LLP. I plan to register a company name , different from product name that we have in mind….

    wanted to know, how do we register the product??

  53. want to know your contact number.really informing.

    kindly tell more about LLP and partnership firm.

  54. I would like to open a Sanwich bar in a town in Haryana.

    Can i get any tax benefits if i register it as a Limited company ?

    Please also advise is it possible to open a Sandwich bar as limited company? Please advice details if possible .

    Please advice what should i do to open a sandwich Bar? i mean what would be suitable to register for opening a Sandwich bar?

  55. Sir I Want A draft Format of Moa & AoA of A Home Furnishing Pvt. Ltd. Company.

  56. good assistance to me

    sir i m propritor of one company and i want to start new fiem as pvt.ltd company
    can u tell me what is advantage

  57. compare to open new other partner or propritor firm

  58. We are a Delhi based firm of Company Secretaries. For easy registration of companies in India and other related matters, kindly contact us at csishleen@yahoo.in

    Thanks & regards,
    Ishleen


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