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Private Limited Company Registration Articles
16
Oct
17
New Exemptions Granted to Private Limited Companies

Companies Act 2013 which replaced the earlier Companies Act 1956 levied certain Restrictions on the Private Limited Company. Due to which the owners of private limited company raised concerns. Keeping in mind the interest of the private limited company an exemption list provided to the private limited company was released on 5th June 2015. Following exemptions were granted to the private limited company through the notification of 5th June 2015-

  1. Related Party Transactions- With the implementation of companies Act 2013 undertaking the related party transactions required the board approval and in some case, the approval of shareholders is required.

The amendment introduced modified the definition of a 'related party' for private limited companies. Due to which the following were excluded from the definition of related party-

 (a) Holding companies

 (b) Subsidiary companies

 (c) Associate companies

 (d) Subsidiaries of holding companies of the private limited company.

 Thus, transactions of a private company with Exempted Entities will not be considered to be a "related party transaction" and will not require compliance with the provisions of Section 188 of the 2013 Act. Further, the related parties were not permitted to vote at a general meeting of shareholders for a resolution to approve any contract or arrangement between the company and a related party. Through the Exemption Notification, this restriction will also be removed from the private limited company.

  1. Kinds of Share Capital- Companies Act 2013 put forward the restriction on the private limited company that it can issue only two kinds shares i.e equity shares and preference shares. This restriction was removed through the exemption list issued. Thus now private limited companies are free to issue any type of share they desire without any restriction but subject to their charter. This helped the private limited companies to issue any class of shares.
  2. Accepting deposits from members- The companies Act 2013 permits all kinds of companies to accept deposits from their members subject to the fulfillment of certain conditions. After the exemption list was released these restrictions do not apply to the private limited companies accepting deposits from members which are less than 100% of its paid- up share capital and free reserves. However, the private companies are required to file the details of such deposits received from the members with the registrar of companies in the prescribed manner.
  3. Power to purchase own shares- Earlier no private limited company and the public limited company was empowered to purchase its own shares. However now the private limited companies who satisfies the following conditions are empowered to purchase its own shares-
  • No other body corporate has invested any money in share capital of the Company
  • Borrowing from banks, Financial Institutions or Body corporate is less than twice of its paid up capital or ₹ 50 crore, whichever is lower
  • Such a private company should not have defaulted in repayment of borrowings as may be existing on the date of the transaction under the section.
  1. Loan to directors- As per the provision of section 185 of the companies act 2013 no company can advance loan to its directors or any person in which director is interested. Further, it prohibits giving any kind of guarantee or providing any security in connection with any loan that the directors avail in their personal capacity. Now an exemption is being granted to the private limited companies for granting loans if they satisfy the following conditions-
  • There shall be no other body corporate shareholder in the lending company
  • If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower
  • Such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this Section.
  1. Resolutions and agreements- As per the Companies Act 2013 the private limited companies were required to file the all kinds of resolutions passed and the agreements made with the registrar of companies. However, after the exemption list was released they are no more required to submit the resolution and agreements with the ROC.
  2. Auditors’ Eligibility- The restriction was imposed by section 141 of companies Act 2013 to the auditing firms, partner or the partnership firms. The auditor who is in full time employment elsewhere or in the capacity as auditor of more than 20 companies at the date of appointment or reappointment shall not eligible to be appointed as auditor of the company.

The exemption notification has modified this restriction. Now the appointment of a person as an auditor of one person companies, dormant companies, small companies; and private limited companies having a paid up share capital of less than Rs. 100 Crore may appoint its Auditor irrespective of the limit of 20 audits provided earlier.

  1. Participation of interested directors- Under the Companies Act 2013 the director is required to disclose his interest in the company with whom a contract and arrangement is entered if he is directly or indirectly is in association with that company. Further, he was not allowed to participate in a meeting of the board where discussion of this contract or arrangement is held. This restriction made it difficult to many private companies to comply with companies act provision, particularly in companies having two directors and either one or both of them are interested. Thus through the exemption list, the interested directors were allowed to participate in the meeting where such contracts or agreements are discussed.
  2. Appointment of senior personnel- As per the sections of companies Act any appointment of the Senior Management by the board of directors shall be subject to the approval of shareholders at a general meeting. The companies appointing Senior Management are also required to comply with the prescribed terms and conditions. In case of failure to comply with the terms and conditions specified in Schedule V, the approval of the central government is required to be obtained by the relevant company.

Further, if the shareholders at a general meeting do not approve the appointment of the Senior Management by the board of directors, such disapproval shall not result in the actions of the Senior Management prior to the general meeting becoming invalid.

Through the exemption list, this restriction is not applicable to the private limited companies.

  1. Minimum Capital Requirement- Earlier in order to incorporate the private limited company, it was mandatory for every private limited company to have a minimum paid-up share capital of rupees 1 Lakhs. Through the exemption list, the requirement of minimum share capital has been removed.
29
Jul
17
NRI shareholders incorporating in a Private Limited Company in India

Non Resident Indian abbreviated as NRI are the people with Indian origin but live in Foreign Countries. They have their and professional and personal relation with people living in India. Let’s make it more clear by making things classified as two types of Non Resident Indian    

  • Person do not live in India but have an Indian passport
  • Non-resident Indians holding foreign passport but Person of Indian Origin (PIO)

Private Limited Company is a popular mode for the NRI or Foreign Investors to start on with business in India., This classification is done by FEMA Act, 1999.

 Are NRI's allowed to establish any Company type they want in India?

Private Limited Company and other Limited Company is the only type of company that can be incorporated by NRI and Foreigners. Any NRI or Foreigner is not allowed to form One Person Company, Sole proprietorship or Partnership type of business unless its limited Company.

Registration of Business Type

Foreign Direct Investment (FDI) is allowed in Private Limited Company in India under Automatic route. It can be possible in Limited liability Partnership but there is a need of prior approval from the Reserve Bank of India for the same.

Shareholding

According to the Companies Act, 2013 NRI or foreigners can be Directors and Shareholders of the Private Limited Company. As you know private limited company need minimum of two shareholders and can have a maximum of 200 shareholders. As per certain FDI norms in India NRIs are subjected to the process of shareholding making things simpler as the Reserve Bank of India allows 100% FDI in many sectors in India under the automatic route.

Procedure of Incorporation

There is no difference in the process of registration of the Company for the NRIs as compare to the Indian Directors and Shareholders. There is a need of at least one Director and one shareholder of Indian Origin. The documents are same as of the Indian Shareholders, but all must be notarized. The ID-proof, Address Proof and other documents of foreign documents need to be Notarized by a licensed professional.

Purchase & Transfer of Shares by NRIs in a Private Limited Company

There are several conditions on which the purchase of the shares of NRI depends, a person staying out of India can purchase share/equity/stock/preference shares/convertible debentures that are offered by an Indian Company based on the following conditions:

  • It is permitted under FDI Scheme should not increase with the purchase of shares by the NRI or the percentage of the Foreign Equity which is already approved.
  • Sectored cap of FDI for the share should not be exceeded.
  • Stock Purchase should be by a person who is already staying out of India
  • Indian shareholders should not amount of share more than NRI or Foreigner.

Transfer of shares depends on who is transferring the share to whom. It can be the following situations

NRI to another NRI

The Reserve Bank of India has given permission to carry forward this transfer of shares of a Company from one NRI to another NRI/PIO.

NRI to Person Resident in India

This needs prior permission from the Reserve Bank of India as the shares are being transferred to person resident outside India to a person resident in India.

 NRI to Indian Resident

The transfer of share by NRI to an Indian Resident is permissible by the Reserve Bank of India, and can be done by way of gift to a resident of India.

28
Jul
17
Foreigners as Shareholders in Private Limited Company

Foreign Direct Investment (FDI)

Foreign direct investment (FDI) is the controlling ownership in a business enterprise in one country by a share based in another country. FDI is either in the form of business operations or acquiring business assets in the other country, such as ownership or controlling interest in a foreign company.

Private Equity Capital

Value which implies shares issued by an organization and Private Equity is the load of capital that is not insinuated on an open trade rather it is the immediate interest in the venture. The private value capital originates from the retail and organization financial specialists.

Since India has constantly kept up the budgetary development and the decent variety in India pulls in outside nationals to put resources into the Indian Market. There are certain facilities for Private Limited Companies as Foreign Direct investment upto 100% into this sector is under automatic route and there is no need for the approval of Government. Therefore,Private Limited Company Incorporation is the best form of company recommended for foreign nationals Since, its quickest and easiest way to enter into Indian Market.

There are certain restrictions on Foreign Direct Investment in Private Limited Company that needs government approval. 

Petroleum sector, Natural gas/LNG pipelines (this excludes private sector oil refining)

Investing in Companies infrastructure.

Defence and strategic industries, Broadcasting, Print Media, Tea Sector

Asset Reconstruction Companies, Courier Services, Postal Services, Atomic Minerals

There are certain steps associated with the incorporation of an Indian Private Limited Company for foreign nationals.

Company need to have a minimum of two shareholders and two directors and the shareholder can be a person or a corporate entity but the director needs to be a person.

A foreign national is permitted to be the director of the company. Among the directors, it is must to have at least one director of Indian origin i.e. both citizen and resident of India.

There can be a combination of Foreign Nationals or Foreign Companies holding 100% shares of the Indian Company. Hence one corporate entity cannot hold all the shares of the Indian Private Limited Company.

DSC for Foreign National Directors

This is a very important and fundamental application form in the process of Registration, hence it is needed for all the directors associated with the Company.

Documents to be attached for Foreign Nationals are:

  • Copy of Passport is mandatory as an ID Proof.
  • Address Proof :It should not be older than one year from the date of filing the form.
  • Rest of the documents are all same as for the Indian National.

For a foreign national all the documents are to be notarized.

For the foreigners residing in India, the documents required are:

  • Passport
  • Visa
  • Application form
  • Passport photograph

Resident Permit: All the above documents from the single embassy

DIN and Name Approval

 Director Identification Number (DIN) should be obtained for the directors of the Company. As per the Companies Act, 2013, Once the DSC (Digital Signature Certificate) is obtained it is easy to get the DIN for the Directors.

There must be a minimum of two DIN numbers

Filing for Incorporation of a Private Limited Company

Another important step is name approval and once it is done documents can be filed with the Ministry of Corporate Affairs (MCA) for Company Incorporation.

Following documents are required:

  • Affidavits & declaration from the Directors.
  • Memorandum of Association and Article of association
  • Address Proof of Registered Office.

Finally, the company will receive the incorporation certificate after noticing all the documents have been notarized by both the Indian and Foreign Directors. An Indian Company can finally apply for the Company PAN Card and also open a Bank Account in India.

14
Jun
17
Checklist for Due Diligence of Company

Due diligence is a formality performed before bank loan funding, business sale, private equity investment, etc., It is the process to check, the financial, legal and compliance aspects of the company that are usually reviewed and documented. This procedure can be followed in any type of company whether it Private Limited Company or any other Limited Company. Companies should be updated with the checklist by performing due diligence on a company in India.

Due diligence mainly helps the buyer take an informed investment decision and mitigate risks associated with a business purchase transaction. In the procedure both the parties usually enter into a non-disclosure agreement prior to starting a business due diligence as sensitive financial, operational, legal and regulatory information would be divulged to the buyer during the due diligence process. It is the responsibility of the seller of the business or shares or “Seller” to provide the documents and information necessary for performing a due diligence on the company to the buyer. Business due diligence is process performed prior to the purchase of a company or investment in a company by the acquirer or investor or we can say buyer.

Documents Required During Company Due Diligence

  • Certificate of Incorporation
  • Memorandum of Association
  • Articles of Association
  • Shareholding Pattern
  • Financial Statements
  • Income Tax Returns
  • Bank Statements
  • Tax Registration Certificates
  • Tax Payment Receipts
  • Property Documents
  • Statutory Registers
  • Intellectual Property Registration or Application Documents
  • Employee Records
  • Utility Bills
  • Operational Records

Review of MCA Documents

Mainly due diligence of a company starts with the MCA (Ministry of Corporate Affairs) website. The master data about a company is made publicly available. Further, with the payment of a small fee, all documents filed with the Registrar of Companies is made available to anyone. The relevant information from the MCA website is usually verified first. The documents and information gathered in this step include:

  • Company Information
  • Date of Incorporation
  • Authorised Capital
  • Paid up Capital
  • Date of Last Balance Sheet
  • Date of Last Annual General Meeting
  • Status of the Company
  • Director Information
  • Date of Appointment of Directors
  • Directors of the Company
  • Charges Registered
  • Details of Secured Lenders of the Company
  • Quantum of Secured Loans
  • Documents
    • Certificate of Incorporation
    • Memorandum of Association
    • Articles of Association

In addition to the above, the financial information of the company and other filings with the MCA pertaining to various aspects of the company can be downloaded and reviewed. The review of MCA documents of the company would provide a good overview of the company to the person performing the due diligence.

Review of Articles of Association

It is very important to review the articles of association of a company during the due diligence process to ascertain the different classes of equity shares and their voting rights. The articles of association of a company can restrict the transfer of shares of a company. Thus, the articles of association should be studied carefully to ascertain the procedure for transfer of shares.

Review of Statutory Registers of Company

Under Companies Act, 2013, a private limited company is required to maintain various statutory registers pertaining to share allotment, share transfer, board meetings, board of directors, etc., Therefore, the statutory registers of a company must be reviewed to obtain and validate information pertaining to directorship and shareholding.

Review of Taxation Aspects

Taxation aspects of a company must be thoroughly checked during the due diligence process to ensure that there are no unforeseen tax liabilities created on the company in a future date. The following aspects relating to the taxation aspect of a company must be checked:

  • Income tax return filed
  • Income tax paid
  • Calculation of income tax liability by the company
  • ESI / PF Returns Filed
  • ESI / PF Payments
  • ESI / PF Payment Calculation
  • Service Tax / VAT Returns Filed
  • Service Tax / VAT Payments
  • Basis for Service Tax / VAT Payment Calculation
  • TDS Calculations
  • TDS Returns
  • TDS Payments

Review of Book of Accounts and Financial Statements

 Companies need to maintain book of accounts along with detailed transaction information by the Companies Act, 2013. Hence, detailed financial transaction information must be audited and verified against the financial statements prepared by the company. Some of the matters relevant during the business financial due diligence process are:

  • Verification of cash flow information
  • Verification and valuation of all assets and liabilities
  • Verification of bank statements
  • Verification of all financial statements against transactional information

 Review of Legal Aspects

A comprehensive legal audit of the company must be performed by a legal practitioner to ascertain if there are any pending legal actions, suits by or against the company and liability in each. Further, the following aspects must be checked during the legal due diligence:

  • Legal due diligence for all real estate properties of the company.
  • Verification of court documents and court filings, if any.
  • No objection from Secured Creditor for transfer of company.

Review of Operational Aspects

It is important to obtain a through understanding of the business model, business operations and operational information during the due diligence process. The review of operational aspects must be extensive including site visits and employee interviews. Following are aspects that must be covered and documented in the operational aspects review:

  • Number of Customers
  • Number of Employees
  • Business Model
  • Production Information
  • Machinery Information
  • Vendor Information
  • Utilities

In addition to the above, based on the business and business model, other operational aspects may be important. Those aspects must be thoroughly checked and documented during the due diligence process.

05
Jun
17
What is the Fees of Private Limited Company Registration?

Private limited is the most preferred form of company in India. Since, it is to raise funds in this type of company. Private limited company registration has now become very simple process.  One of the major factors is the authorized share capital with which you want to register your private limited company.

If you want to register your private limited company with the minimum requirements then cost of company registration will be less. Cost of company registration depends upon the authorized share capital.

In this article we will calculate cost of company registration applicable to a private limited company to let you know how costs are derived.

Following are the various factors on which let us discuss these factors that affect the cost

  • Initial authorized share capital
  • Number of directors
  • Stamp duty
  • Professional Fee charged by a Chartered Accountant or Company Secretary

Company registration in India is not possible without the help of a chartered accountant or Company Secretary.

Cost remains same in some of the factors the fact on which costing differ is stamp duty charges (but the difference will be very less).

Costing also depends upon the professional fee that a chartered accountant or CS will charge you. This is mainly in case of private limited company.

Following are important things used in the company registration according to which cost of company registration can differ

Getting digital signature certificate is one of the most important step of your company registration. Online Company registration is not possible without DSC. If you do not have DSC then you cannot fill single online form. According to the provisions of Companies act, 2013.Application for DIN (e-Form DIR3) has to be signed digitally by each applicant with DSC.

Chartered Accountants or Company Secretary are not required in getting DSC. DSC cannot be obtained by any Certifying authority providing these services. Chartered Accountants or Company Secretaries provide some offer which will also include DSC with some charges. You should be thorough about this on company registration.

Getting Director Identification number (DIN) is also one of the most important step of company registration. Obtaining DIN is not a complex process. In case you want obtain DIN immediately then your Chartered Accountants or Company Secretary need to electronically certify your DIN application.

Company Approval

One of the processes for registering your company is getting the proposed name of the company approved from MCA before its registration.

This process does not cost you much. Cost of getting your private limited company name approved from Ministry of corporate affairs will cost you Rs. 1, 000 only.

Registering your private limited company This is the final step for registration of private limited company. You pay major part of your expenses in this final step. Cost will vary depending on the authorized share capital of the company. Following costs are involved at this stage of company registration process;

  • Fee for Memorandum of Association
  • Fee for Article of Association
  • Fee for SPICe

MCA portal has all the cost details for this part from by entering the authorized share capital amount of your company. In case you select SPICe from the drop down and then enter the share capital amount for registration, it will show you the cost for filing MOA, AOA.

Sr. No

Particulars

Calculation

Amount is Rupees

1

Getting DIN

Rs. 500 per DIN

1000

(if requirement is for 2 directors)

2

Getting DSC (DSC depends on the number of director applying for DIN)

Rs. 1000 per DSC

2000

(if requirement is for 2 directors)

3

Stamp Papers and notary charges for affidavit

depends on number of affidavit, certification and declarations

200 (approx if requirement is for 2 directors)

4

Company Registration

   
 

I

Spice (Normal)

500

 
 

II

MOA

2000

 
 

III

AOA

300

 
 

IV

PAN

107

 
 

V

TAN

63

 
   

Total

 

2,970

5

Stamp Duty Charges for MOA, AOA and Form Spice(cost depends on the state of your registration)

 

 360

Total cost of company registration

6,530/-

09
May
17
Women Director of the Company

India is a country of opportunities where all people have equal right. According to Indian Constitution people, All the citizen in India deserves equal right whether they are of any Caste, Religion or Gender. There are opportunities of some fields where women are less preferred. But now the scenario has been changed. Women are walking parallel with Men in every field whether it is Defence, Finance, Banking, Corporate or any other sector.   

Women are part of many board meetings of companies in and outside India. In India, there are certain provisions preferred/ privileged considering the fact of disadvantages in some ways. Companies are showing interest more and more on appointing professionals as women directors on the board, instead of inducting family members, including wives and daughters, as directors to meet a regulatory deadline that require listed firms to appoint at least one woman director on their boards. 

Importance and Role of Board of Directors

According to the Companies Act, 2013 there are certain provisions made for employing women directors on the Boards of the certain class of companies and it is a welcome move. Before we get more into it let’s pick a point of importance and role of the Board of directors. The Board of Directors is an important body. These are important persons elected by the shareholders and responsible for running the company.

Board of directors is collectively responsible for making policies for good governance. The Body should act in the best interests of the Company and Stakeholders. It mainly focuses on the accountability and responsibilities of directors by mandating certain disclosures such as evaluation of the performance of the board, CSR policy, whistleblower mechanism, risk policies etc in the Directors report.

Duties of Directors, Companies Act 2013

Companies Act, 2013 defines duties of directors and role of independent directors. It also cast a duty on the Board to device proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

There are certain provisions for appointment of woman director. Due to this there has been an increase in the maximum number of directors from existing limit of 12 to 15 and provided for an increase. According to the special resolution, it can be beyond 15 by a special resolution. Kept the power with Central Govt for prescribing minimum number of directors in case of certain companies or class of companies - prohibited insider trading - provided for stringent penalties for violation of duties and nondisclosure of interest in related party transactions

Why focus on Woman directors? 

According to the survey in North America, more than 700 reputed companies have the highest representation of women directors on board and have achieved better financial performance than those have less representation of women directors on Board. In the United States, women held about more than 16% of the board seats of companies. It is having a better percentage in European countries. These are listed companies which are a very dismal percentage. There has been thrust given by the New Act, 2013 is helping to improve the representation of women directors on the board.

According to the relevant Section is 149 of the Act, 2013. The provisions are mainly related to appointment of directors and matters such as the minimum and a maximum number of directors, type/class of directors to be appointed.

Rules have been displayed on the MCA website that indicates the following for appointment of women directors on the boards of companies:

  1. a) Every listed company shall appoint at least one woman director within one-year
  2. b) Every Public company that is having paid up capital of 100 crores or more or - a turnover of 300 crores or more have to compulsorily appoint within 3 years.

Point of view has made many things right. Companies have taken decisions and successfully built a good Business. In many situation Gender bias has affected many companies. According to the new Act a company should compulsory appoint at least one woman director and the company will have to search for good woman directors.

For more information about company registration visit Registrationwala.

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