Private Limited Company Incorporation – Requirements and Advantages

Introduction

A Private Limited Company (PLC) is a body corporate and is a legal person in the eyes of law formed by two or more persons / legal persons. The PLC has a separate existence from its Owners (commonly known as Shareholders or Members) and comprises a mix of Limited Liability of members and ability to hold assets and operate the business in its own name i.e. perpetual succession. Every PLC should have at least two shareholders or directors and a maximum of 15 directors or 200 shareholders, wherein the shareholders can either be natural persons or corporate entities. However, shareholders can never be the directors in the same company.

[Image Credit: Shutterstock]

The shareholders will have limited liability and one partner will not be responsible for the negligence / malpractice of the other(s) and the liability of the shareholders of a company is limited only to the value of shares taken up by them. Further, PLC is responsible for its own assets and binds to protect the member’s personal assets from the liabilities of the business, which means that they are not fully responsible for the business’ debts or liabilities.

Requirements Incorporating a PLC:

Eligibility Criteria:Any PLC must have at least one Indian national as a partner and not more than 50% of the shares shall be held by any Foreign company (In case of Foreign shareholder / Director).

Business name: Names must be chosen in a way that they are not similar to the already existing names and are not undesirable to the government(s). One must ensure the availability of the name for registration through simple searches in trademarks, domain names, list of companies available in the MCA (Ministry Of Corporate Affairs) portal, and a simple google search. Once a name is finalized they should be suffixed with Private Limited and the same should be reserved for further processing through Central Registration Centre.

Agreement: Though not a mandate document, it is always advisable to have the PLC agreement in place that has the details of duties and roles of the shareholders, directors, governing principles, rules and regulations, capital contributions (if any), profit-loss sharing, etc.

Association Documents: Articles of Association (AoA) detailing the bye laws or rules and regulations providing for the managing the affairs of the company; and Memorandum of Association (MoA) detailing the object and nature of business of the company, liability of members, share capital, etc.

Registration of PLC with MCA: PLC should be registered with the registrar of companies in the jurisdiction where the PLC would be situated by submitting suitable forms and fees.

Registration Details: EPFO, ESIC, Professional tax registrations, etc.

Other details: (i) Names, personal / contact details of each of the partners, (ii) address of the place of business, and (iii) the details of the designated member for communicating / dealing with the MCA, regulatory bodies, and other government organizations associated with the functioning of the PLC.

Once a PLC is formed, the following requirements are followed by the company each year i.e. annual returns filing, atleast four board meetings in a financial year, filing of financial and KYC statements to the registrar of companies, filing of the board reports, etc. Also, the companies need to fulfill the requirements of opening bank account in the name of the company, issuance of share certificates to the shareholders, appointment of statutory auditors, etc.

Some Advantages of PLC Registration:

  1. Being a legal person, PLC has perpetual succession i.e. existence after insolvency, death of the partners, etc. and can own the properties in its name
  2. Liability of the shareholders and directors is limited and they are not liable for other person’s misconducts and the liability of the shareholders of a company is limited only to the value of shares taken up by them
  3. Being a legal person, aPLC can be sued and has to undergo any legal process based on the requirements.
  4. Protects the shareholders’ personal assets from the liabilities of the business

IPLF and PLC Registration:

The Government has simplified the mechanisms of registrations of companies and made the process much more user friendly these days. However, it is always better to seek the help of professionals to avoid hassles that occur during the registration process. Our team comprises highly skilled and trained legal / accounting professionals to assist in registering your businesses as per the needs including PLC registration and protecting your business interests.

Author: Govindhaswamy Srinivasan, a Principal Associate – Patents at Khurana & Khurana, Advocates and IP Attorneys.  In case of any queries please contact/write back to us atsupport@ipandlegalfilings.com

Leave a Reply

Your email address will not be published. Required fields are marked *