Limited liability

• Personal Asset Protection
  

  Both Companies and LLPs allow owners to separate and protect their personal assets. In a properly structured and managed company, owners will have limited liability for business debts and obligations.

• Reduces Personal Liability
  

  Incorporated entity is a separate body from the one or ones who own it. Therefore, when an incorporated entity is sued, there are provisions in the law to protect the owners (shareholders) and managers (officers and directors) from personal liability. Once you do business with the public or have even one employee, you are wide open to legal liability. An incorporated entity can provide a legal shield between your business life and your personal life.

• Separate Legal Entity Status
  

  An incorporated business entity is a separate legal entity from that of its owners and managers. The persons who own and manage the incorporated entity are not directly liable for the acts and deeds of the entity unless there is a violation or misuse of their fiduciary position within the entity. The incorporated entity is capable of owning funds and other properties in its name. The entity will be the owner of all the property vested with it. Being a legal body in the eyes of the law, a Company or LLP can sue in its name and be sued by others.

• Adds Credibility
  

  An incorporated entity has greater credibility in the eyes of many customers and lenders than does a sole proprietorship or partnership. When you have taken the step to incorporate your company, it is perceived that you have long-term plans for your business. Because of the added trust, this may increase the likelihood that customers and lenders will be willing to part with their money.

• Protection of Name

  Registering a business gives protection to the extent that no one else will be permitted to register a business with the same name. However, ultimate protection can only be ensured through Trademark Registration

• Deductible Expenses
  

  Business entities are entitled to deduct normal business expenses, including salaries from the revenue before they calculate income for tax purposes

• Raising Capital
  

  There is a greater source of capital available to registered Companies and LLPs than to partnerships or proprietorships. Because the incorporated entities are separate from the owners, people tend to be more willing to invest money without accepting liability or responsibility for company business.

• Transferability of Ownership or Interest
  

  The shares of the Company and interest in LLP are considered movable properties and are easily transferable. (subject to law)

• Perpetual Duration

  An incorporated business entity continues to live even after the death of its owners.

• Governance and Disclosure Norms

  In India, Company and LLP form of organizations are governed by respective Laws. A Company and LLP have to follow various regulatory procedures during the course of their operations and are subject to stringent disclosure norms. Good governance and transparent disclosure of operations add value to the business, thus benefiting the true business owners.

A limited company has following advantages:

• Members' (the directors and shareholders) financial liability is limited to the amount of money they have paid for shares.
• The management structure is clearly defined, which makes it easy to appoint, retire or remove directors.
• If extra capital is needed, it can be raised by selling more shares privately. It is simple to admit more members.
• The death, bankruptcy or withdrawal of capital by one member does not affect the company's ability to trade.
• The disposal of the whole or part of the business is easily arranged. High status

A limited company has following disadvantages

• Requirement to register the company with the registrar of companies and provide annual returns and audited statement of accounts. All details of the company are available for public inspection so there can be no secrecy. There are penalties for failing to make returns.
• Can be more expensive to set
• May need professional help to form.
• As a director, you are treated as an employee and must pay tax
• The advantages of limited liability status are increasingly being undermined by banks, finance house, landlords and suppliers who require personal guarantees from the directors before they will do business.

In India, we have two types of limited liability company :

1) Private Limited Company
2) Public Limited Company

What is a Private Limited Company?

A Private Limited Company is a Company limited by shares in which there can be maximum 50 shareholders, no invitation can be made to the public for subscription of shares or debentures, cannot make or accept deposits from Public and there are restriction on the transfer of shares. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 2.

A private company is a company which has the following characteristics:

• shareholders' right to transfer shares is restricted;
• the number of shareholders is limited to fifty; and
• an invitation to the public to subscribe to any shares or debentures is prohibited.

A Private Limited Company is the most popular form of business entity used for Foreign Investors in India, including USA investors in India

What is a Public Limited Company?

A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The liability of each shareholder is limited to the extent of the unpaid amount of the shares face value and the premium thereon in respect of the shares held by him. However, the liability of a Director / Manager of such a Company can at times be unlimited. The minimum number of shareholders is 7.

A public company is defined as a company which is not a private company. The following conditions apply only to a public company:

• It must have at least seven shareholders.
• A public company is not authorized to start business upon the grant of the certificate of incorporation. In order to be eligible to commence business as a corporation, it must obtain another document called "trading certificate".
• It must publish a prospectus or file a statement in lieu of a prospectus before it can start transacting business.
• A public company is required to have at least three directors.
• It must hold statutory meetings and obtain government approval for the appointment of the management.

There are several other provisions contained in the Companies Act 1956 which are applicable only to public companies and should be consulted.

• A Public Limited Company, in addition to the steps followed by a Private Limited Company has to obtain a certificate of Commencement of Business before they can commence the business.
  
  To obtain Commencement of Business Certificate after incorporation of the company the public company has to:-
  
  - File a declaration of compliance with the provisions of Section 149(2)(b) of the Act in eForm 20 and attach the statement in lieu of the prospectus(schedule III)
  
  OR
  
  - File a declaration of compliance with the provisions of Section 149 (1)(a),(b),(c) of the Act in eForm 19 and attach the prospectus (Schedule II) to it.

Section 149 of the Act, explains the Restrictions on the commencement of Business:-

Where a company having a share capital has issued a prospectus inviting the public to subscribe for its shares, the company shall not commence any business or exercise any borrowing powers, unless -

• shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription;
• every director of the company has paid to the company, on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares offered for public subscription;
• no money is, or may become, liable to be repaid to applicants for any shares or debentures which have been offered for public subscription by reason of any failure to apply for, or to obtain, permission for the shares or debentures to be dealt in on any recognized stock exchange.

149(2)(b):- Where a company having a share capital has not issued a prospectus inviting the public to subscribe for its shares the company shall not commence any business or exercise any borrowing powers, unless every director of the company has paid to the company, on each of the shares taken or contracted to be taken by him and for which he is liable to pay in cash, a proportion equal to the proportion payable on application and allotment on the shares payable in cash.

• Shareholders:
  

  To register a Private Company, there should be a minimum of two shareholders and for Public Company it is seven. The first shareholder should execute the Memorandum and Articles of Association for registering the Company.

• Directors:
  

  A Private Company should have a minimum of two directors and a Public Company should have minimum three directors. Only individuals can be designated as directors of a company. Where a new company is registered by two or more existing companies or LLPs, the promoter company or LLP can nominate individuals as directors of the new company. An individual should hold a valid DIN to become a director of a company.

• Director Identification number:
  

  Each Director has to seek the unique identification number.

• Digital Signatures:
  

  One of the director has to obtain the digital signature

Summary Of Steps and Time Required For Incorporation of Limited Liability Company

Below are the 4 steps in chronological order for incorporation of company.

• A. Digital Signature (DSC) :
  

  It is mandatory to obtain digital signature by any one of the Proposed Director for digitally signing the name approval form and the Company formation documents for filing the documents on line, which are mandatory. For obtaining the digital signature the following documents required along with necessary fees:-

• Application for DSC
• One photograph affixed on the DIN Form duly attested by a Chartered Accountant or a Notary Public, in India.
• Copy of passport (Identity Proof) showing name, father's name, date of birth etc. duly attested by a Chartered Accountant Notary Public, in India.
• In case Father's name is not mentioned in the passport, some other documents with father name, such as birth certificate, driving license or any other documents mentioning father's name issued by the Government Department will be required.
• Residence Proof duly attested by Chartered Accountant and Notary public, in India.
• An Affidavit confirming the arrival to India and physical presence duly notarized by the Notary Public, in India.
• Copy of passport showing date of entry to India and stamp of immigration authorities at the Indian Airport.

• Application for DSC
• One photograph (Identity Proof)affixed on the DIN Form duly attested by a Notary Public from the Country where the Director is presently staying
• Copy of passport showing name, father's name , date of birth etc. attested by a Notary Public from the Country where the Director is presently staying .
• Residence Proof duly attested by a Notary Public form the Country where the Director is presently staying

• B. DIRECTOR IDENTIFICATION NUMBER (DIN)
  
  

For creating the provisional DIN the following information’s required. (Please note that the provisional DIN is granted by submitting the Form online by incorporating the below mentioned information’s):-

• Name as per Passport
• Fathers Name
• Date of Birth
• Residential Address with Post Index Number (PIN)
• Nationality & Citizenship
• Residence Proof, Identity Proof and passport
• Email address

After the creation of provisional DIN, regularization of the same is required as per below:-

• Form DIN-1 signed by the Director
• One photograph affixed on the DIN Form duly attested by a Chartered Accountant or a Notary Public, in India.
• Copy of passport (Identity Proof) showing name, father's name, date of birth etc. duly attested by a Chartered Accountant Notary Public, in India.
• In case Father’s name is not mentioned in the passport, some other documents with father name, such as birth certificate, driving license or any other documents mentioning father’s name issued by the Government Department will be required.
• Residence Proof duly attested by Chartered Accountant and Notary public, in India.
• An Affidavit confirming the arrival to India and physical presence duly notarized by the Notary Public, in India.
• Proof of stay in India like hotel bill, police registration etc.
• Copy of passport showing date of entry to India and stamp of immigration authorities at the Indian Airport.

• Form DIN-1 signed by the Director
• One photograph (Identity Proof)affixed on the DIN Form duly attested by a Notary Public from the Country where the Director is presently staying
• Copy of passport showing name, father's name , date of birth etc. attested by a Notary Public from the Country where the Director is presently staying
• Residence Proof duly attested by a Notary Public form the Country where the Director is presently staying

The following are the Information’s required for the formation of Company

• Approved DIN
• Complete Address of Registered Office along with Postal Index Number (PIN).
• Photographs (2 Nos) of the Directors.
• Proposed main objects of the Company.
• Memorandum & Articles of Association
• A necessary filing fee depends upon the proposed share capital of the Company.
• Embossing on Memorandum & Articles from the State Government after paying required fees.
• Digital Signature.

• Copy of passport (Identity Proof) showing name, father's name, date of birth etc. duly attested by a Chartered Accountant Notary Public, in India.
• In case Father’s name is not mentioned in the passport, some other documents with father name, such as birth certificate, driving license or any other documents mentioning father’s name issued by the Government Department will be required.
• Residence Proof duly attested by Chartered Accountant and Notary public, in India.
• An Affidavit confirming the arrival to India and physical presence duly notarized by the Notary Public, in India.
• Proof of stay in India like hotel bill, police registration etc.
• Copy of passport showing date of entry to India and stamp of immigration authorities at the Indian Airport.
• Subscription clause to be filled in own hand writing of the proposed promoter/shareholder
• Power of Attorney in favor of c consultant for authorizing him to attend before the Registrar of Companies
• Affidavit duly signed by any one of the director

• Copy of passport showing name, father's name, date of birth etc. attested by a Notary Public from the Country where the Director is presently staying.
• Residence Proof duly attested by a Notary Public form the Country where the Director is presently staying.
• Subscription clause to be filled in own hand writing of the proposed promoter/shareholder duly Notarized by a Notary Public form the Country where the Director is presently staying and also attested by the Indian Embassy/Consulate of that country.
• Power of Attorney in favor of c consultant for authorizing him to attend before the Registrar of Companies duly Notarized by the a Notary Public form the Country where the Director is presently staying and also attested by the Indian Embassy/Consulate of that country.
• Affidavit duly signed by any one of the director duly notarized by a Notary Public form the Country where the Director is presently staying and also attested by the Indian Embassy/Consulate of that country.