Setting Up a Private Limited Company in India with Zero Capital Contribution- A Legal Perspective

Setting up a Private Limited Company (PLC) in India is a popular choice for foreign companies, foreign nationals, and entrepreneurs in India due to its distinct advantages such as being easy to set up at an economical cost, separate legal entity, ease of ownership transfer, and closure.

Under the regulatory changes in the Companies Act 2013, it can be established with zero capital contribution.

This blog provides a detailed guide on the documents required for setting up a Private Limited Company in India, the step-by-step process, and post-incorporation compliances.

I Detail & Documents Required:

Proof of Identity and Address for Directors and Shareholders

• Identity Proof: For Foreign Nationals can only be their Passport and for Indian Citizens, it can be a driver's license, voter ID, or Aadhar card. Further, for Indian Citizens, a PAN Card is mandatory along with other identity proof.
• Residence Proof: For Foreign Nationals and Indian Citizens: This can be any utility bill (electricity, water, gas) or bank statement not older than two months.
• Passport-Sized Photographs
• Registered Office Address Provisional

II Step-by-Step Process to Submit Documents

1. Name Approval:

Use the Reserve Unique Name (RUN) service on the MCA portal to check and reserve the company name. Ensure it complies with the naming guidelines and The Emblems and Names (Prevention of Improper Use) Act, of 1950.

2. Obtain a Digital Signature Certificate (DSC)

DSC: A Digital Signature Certificate is required to sign electronic documents submitted to the Registrar of Companies (ROC). It can be obtained from authorized certifying agencies.

3. Prepare Incorporation Documents: Draft Memorandum of Association (MOA):

It contains outlines the company’s objectives, and scope of activities and defines its relationship with shareholders. In the case of Indian Shareholders, It must be digitally signed by all subscribers (shareholders) disclosing several shares they have agreed to subscribe and in the case of Foreign Shareholders, it will be signed manually by all the shareholders in their own handwriting.

Likewise, the Articles of Association (AOA) incorporate details of the internal rules and regulations governing the company’s management. It must also be signed by the subscribers (shareholders) in the same way as the MOA is signed.

4. Declaration and other Documents

INC-9: Declaration by the directors and subscribers confirming that they comply with the provisions of the Companies Act, 2013.

DIR-2: Consent to act as a director, signed by each director.

5. PAN and TAN Applications

PAN (Permanent Account Number): Necessary for tax purposes.

TAN (Tax Deduction and Collection Account Number): Required for deducting tax at source i.e. withholding tax.

6. File Incorporation Forms:

Submit the SPICe+ form along with MOA, AOA, INC-9, DIR-2, and AGILE-PRO on the MCA portal. A brief description of these forms is as under:-

• Form INC-32 (SPICe+)

The Simplified Proforma for Incorporating Company Electronically Plus (SPICe+) is an integrated form that facilitates the incorporation process. It covers multiple aspects, including name reservation, incorporation, DIN allotment, and PAN/TAN application.

• AGILE-PRO Form

This form is used for applying for Goods and Services Tax Identification Number (GSTIN), Employees’ Provident Fund Organisation (EPFO) registration, and Employees’ State Insurance Corporation (ESIC) registration.

7. Scrutiny & Verification:

The Registrar of Companies (ROC) after being satisfied with the authenticity and correctness of the documents filed, invariably issues a certificate of incorporation online. There is no regular process for issuing of hard copy of the certificate.

III Post-Incorporation Compliances

1. Opening a Bank Account

Once the company is incorporated, open a corporate bank account in the company’s name to manage financial transactions. It can be opened with zero capital.

2. Form INC-22

If the Company has not filed the proper address of the registered office along with its proof while filing application for registration of the company as above. It is mandatory under the law to inform the Registrar about the location of the registered office of the company by way of filing Form INC 22.

3. Capital Contribution

A Private Limited Company as incorporated above, is required to bring subscription money as the subscribers of MOA at the time of incorporation of the company has agreed to subscribe before commencement of business by the company.

4. FEMA Compliance

A Private Limited Company incorporated in India by a foreign entity, foreign nationals, or having stakes directly or indirectly with Indian Nationals is required to comply with various statutory compliances in time-bound manner post-incorporation of the Company.

Conclusion

An Entrepreneur can establish a Private Limited Company without any capital contribution neither as upfront nor during the course of its establishment.

One can introduce committed subscription money (capital contribution) as per MOA for obtaining a certificate of commencement of business within a maximum of six months from the date of its incorporation.