Knowledge Center

Jun 30
Incorporation of Private Limited Company
Posted by:MyEfilings
Reasons why the Private Limited Companies are back to fashion

The 58 year old Companies Act, 1956 was repealed and replaced with the Companies Act, 2013. The intention of the lawmakers was to replace the old irrelevant provisions of the Companies Act, 1956. But due to heavy regulatory burdens the purpose seemed to have failed.

The Government has introduced various measures through the Companies (Amendment) Act, 2015 in order to facilitate doing business in India. With introduction of the Companies (Amendment) Act, 2015, one can say that the Private Limited Companies are back to fashion.

Here are few reasons why the Private Limited Companies are back to fashion now because of the Companies (Amendment) Act, 2015.

No minimum paid up capital

The minimum paid up capital requirement for starting a new Private Limited Company was Rs. 100000/-. This provision has been amended and now a Private Limited Company can be started with any amount of Capital.

As a result of this amendment the promoters can now introduce capital as and when it is required by the Company. There is no need to deposit a huge sum of Rs. 100000/- in bank account.

 Fast track mode of Company Incorporation

The Ministry of Corporate Affairs (MCA) introduced new e form INC – 29 with effect from 1st May, 2015. By paying just Rs. 2000 extra as additional fees, a Private Limited Company can be incorporated within 5 to 7 working days. A Private Limited Company can now be incorporated by filing a single form in place of different forms for Directors Identification Number, Name Approval and Incorporation documents.

Exemption from applying for Certificate of Commencement of business

The newly incorporated Private Limited Companies were not allowed to start their business operations unless an application for Certificate of Commencement of business was filed in Form INC 21. This forms could only be filed after introduction of minimum paid up capital of Rs. 100000/-.

As there is no requirement of minimum paid up capital, the startups can introduce the capital as per their requirement. There is no requirement of applying for Certificate of Commencement of business and hence Companies are no longer required to file INC 21.

Acceptance of Deposits from members

Generally the Private Limited Companies in India are closely held companies. The immediate source of funds for these Companies is from the members of the relatives and family members. The Companies Act, 2013 made it practically impossible for the Companies to borrow funds from the family members and relatives. The stringent provisions of the Act were applicable. The only source of finance then with the Private Limited Companies was banks which also take lots of time and efforts to get finance.

The Companies can now borrow funds from its members. The maximum borrowing should not be more than the aggregate of Paid up Capital and free reserves.

In all, with amendments to the Companies Act, 2013, the Government has tried to bring solutions to the pain areas of businesses to an extent.

Click here for more information on Private Limited Companies.


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