Setting up a private limited company in India is a strategic move for entrepreneurs looking to establish a formal business structure with limited liability.
This article serves as a comprehensive guide on the steps involved in the private limited company registration in India. Additionally, we’ll delve into the crucial aspect of the capital clause in the Memorandum of Association, highlighting its significance in shaping the financial structure of the company.
Why Opt for a Private Limited Company?
Before we delve into the registration process, it’s essential to understand why many entrepreneurs prefer a private limited company structure. A private limited company offers limited liability to its shareholders, separating personal assets from business liabilities. Furthermore, it provides avenues for equity funding, perpetual succession, and enhanced credibility in the business ecosystem.
Steps for Private Limited Company Registration
Here are the steps for Private Limited Company registration:
1. Digital Signature Certificate (DSC) for Directors
The first step is obtaining a Digital Signature Certificate (DSC) for all the directors involved in the company. This serves as a digital identity required for filing documents electronically with the Ministry of Corporate Affairs (MCA).
2. Director Identification Number (DIN)
After that, directors need to obtain a unique Director Identification Number (DIN) from the MCA. This is a prerequisite for becoming a director in any company.
3. Name Approval and Reservation
Then, propose a unique name for your company, ensuring it adheres to the naming guidelines laid down by the MCA. After approval, the name is reserved for 20 days.
4. Drafting Memorandum and Articles of Association
The Memorandum of Association (MOA) as well as the Articles of Association (AOA) outline the company’s constitution and internal regulations. The MOA includes the capital clause, defining the authorized capital of the company.
5. Filing Application for Incorporation
Submit the required documents, such as the MOA, AOA, and other relevant forms, to the MCA through the SPICe (Simplified Proforma for Incorporating Company Electronically) portal.
6. Certificate of Incorporation
Upon successful review, the Registrar of Companies (RoC) issues the Certificate of Incorporation. This then certifies that the company is officially registered under the Companies Act.
7. PAN and TAN Application
Apply for the company’s Permanent Account Number (PAN) as well as Tax Deduction and Collection Account Number (TAN) with the Income Tax Department.
8. Opening a Company Bank Account
Use the Certificate of Incorporation and also the other relevant documents to open a company bank account.
9. GST Registration
If the projected turnover exceeds the prescribed limit, then register for Goods and Services Tax (GST).
Understanding the Capital Clause in Memorandum of Association
1. Definition of Capital Clause
The capital clause in the Memorandum of Association delineates the company’s authorized capital, which is the maximum amount of capital it can raise by issuing shares. It consists of two components: authorized share capital as well as the number of shares into which it is divided.
2. Authorized Share Capital
This signifies the maximum amount of capital the company can raise through the issuance of shares. You can increase it with the approval of shareholders through a special resolution.
3. Number of Shares
The capital clause also specifies the number of shares into which the authorized share capital is divided. This also helps in determining the denomination of shares issued by the company.
4. Importance of the Capital Clause
- Investor Confidence: A well-defined capital clause instills confidence in potential investors, that is because it outlines the company’s financial capacity.
- Borrowing Capacity: Lenders often assess the authorized capital when determining a company’s borrowing capacity. A higher authorized capital can enhance the company’s creditworthiness.
- Flexibility for Future Growth: By setting a sufficiently high authorized capital, the company retains flexibility for future expansions and also capital infusions.
5. Amendment of Capital Clause
While the authorized capital can be increased, it requires shareholders’ approval through a special resolution. This amendment is then submitted to the RoC for approval.
6. Role in Allotment of Shares
The capital clause plays a pivotal role when the company issues new shares. The allotment of shares cannot exceed the authorized share capital.
Conclusion
Registering a private limited company in India involves a series of steps that demand careful consideration and adherence to legal requirements. The capital clause of the Memorandum of Association, specifically the authorized capital, is a critical element that influences the company’s financial operations, investor relations, and borrowing capacity. Entrepreneurs must approach the registration process with a clear understanding of these aspects to ensure the smooth establishment as well as growth of their private limited company in the dynamic business landscape of India.