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
Tags: Company incorporation, Entrepreneur, Legal, Private limited company, Startup

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.

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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