What is the main source of law authorising this entity form?

A private limited company is primarily governed by the Companies Act, 2013.

Give a brief summary of the entity form:

Does the entity possess separate legal personality?

A private limited company is one in which the liability of its members is limited to the number of shares held by each member. Furthermore, as the name suggests, shares of a private limited company cannot be publicly traded. The key aspects of the said category of the company are provided below:

Separate legal Entity and Perpetual Succession: A private limited company is a separate legal entity and is valid and subsisting until such company is dissolved as per the Act. Thus, in the event the members are deceased or the company itself is bankrupt or insolvent, the company would continue to exist as per law.

Governing document(s)

These are legal documents drafted at the time of incorporation and registration of the company and are publicly available for inspection. Furthermore, they define the kind of business to be conducted and the rights, duties and functions of the directors as well as the shareholders. The governing documents of a private limited company are:

1. Memorandum of Association (“MOA”): It defines the relationship between the company and its shareholders and details the specific objectives for which the company has been formed. The clauses which form a part of the MOA are:
1. Name of the company;
2. Place of the registered office of the company;
3. Objects of the company. These are divided into 2 sub-categories; Objects to be pursued by the company on its incorporation and matters which are necessary for the furtherance of the main objects of the company;
4. Liability of each member of the company; and
5. (v) Authorised share capital of the company.

It is noteworthy that the company is only permitted to undertake the activities as mentioned therein. Consequently, the objectives under the MOA are usually detailed and broadly worded to ensure that the company may function smoothly and no growth opportunity is curtailed. However, if any clause is required to be modified under the MOA, a special resolution must be passed by the shareholders and the requisite filing must be made with the Registrar of Companies to bring the modification on record. However, to modify the capital requirements of the company (capital clause in an MOA), an ordinary resolution will suffice.

2. The Articles of Association (“AOA”): The AOA provides the rules and regulations for management of the company. It specifies the rights, duties and obligations of not only the directors, but also of the shareholders of the company. This document succeeds the MOA. While the MOA lays down the objects of the company, the AOA provides the roadmap to achieve the specified objects. Further, unlike the MOA, the AOA of a company may be amended through a special resolution of the company. The main components of the AOA are:
1. Shares: rules regarding share capital, its distribution, forfeiture of shares, transfer of shares, surrender of shares, lien, etc.;
2. Directors: appointment of directors, remuneration, director’s qualifications, powers, duties, etc.;
3. Accounts and Audit: maintenance of books of accounts, audit requirements, etc.;
4. Winding up of the company: process of winding up of the company;
5. Shareholders meeting: voting rights, notices for meetings, procedure for conducting meetings, calling of meetings, etc.

Liability of incorporators / shareholders

1. Company limited by shares: In this category, the shareholders liability is limited to the share amount as mentioned in the MOA and the individual would not be held liable beyond the capital invested.
2. Company limited by guarantee: In this category, the members have limited liability to the extent that they have guaranteed to the company. However, such guarantee can only be called upon at the time of winding-up of the company. Such companies are usually formed to perform specific services for the public and are non-profit making businesses.
3. Unlimited companies:In this category, as the name suggests, there is no limitation on the liability of the shareholders. Every shareholder is liable for the entire amount of the company’s debts and liabilities. However, shareholders may not be sued individually as the company is still considered a separate legal entity.

 

(Governing) bodies

Governing Body: The governing body of a company is its board of directors

Other particularities

Number of shareholders: A minimum number of 2 shareholders and a maximum number for 200 shareholders are permitted as per the Act.

Number of directors: As per the Act, only 2 directors are required to form a private limited company. However, one of the directors must be a resident of India, i.e.- he should have stayed in India for more than 182 days in the previous calendar year.

Paid-up Capital:There is no minimum paid-up capital requirement to incorporate a private limited company and capital is brought in according to the needs of the company.

Can this type of entity be involved in international transactions and restructurings (e.g. cross border mergers, asset acquisitions, equity acquisitions, etc.)?

Yes. A private limited company may be involved in international transactions and restructuring. It is noteworthy that such type of company is the most preferred category by foreign investors to incorporate in India. However, the applicable Foreign Direct Investment rules must be adhered to in such circumstance.

Can this type of entity be publicly listed or held?

No. The shares/securities of a private limited company cannot be listed or held by members of the public.

Can this type of entity be used for a non-profit or charitable organisation?

No. Such category of company may not be incorporated for non-profit or charitable organisations. Non-profit organisations may be established under the below mentioned legislations:

1. Trusts;
2. Societies registered under the Societies Registration Act, 1860; and
3. Companies incorporated under Section 8 of the Act.

Give a brief summary of the process of incorporation, formation, or organisation:

The incorporation of a private limited company is a fairly simple process. The main steps involved are as follows:

Obtaining Director Identification Number (DIN) & Digital Signature

The first step to register a private limited company is to obtain the Directors Digital Signature and to apply for Director Identification Numbers (DIN) for the proposed directors of Private Limited Company.

For obtaining DINs for proposed directors, electronic form DIR 3 must be filed on the website of the Ministry of Corporate Affairs (“MCA”) with the Registrar of Companies (“RoC ”).

Applying for the Name

An application for reservation of name of the private limited company is required be made in an electronic form on the website of the MCA with the ROC. This form is known as the RUN Form. An applicant is required pay the statutory government fee for applying for name reservation.

The promoters are required to provide 2 (two) suitable names for the proposed company in order of preference to afford certain flexibility to the Registrar to ascertain the availability of the same. The proposed name should not be similar/identical to the name of an existing company or LLP and should not be prohibited as per the Emblems and Names Act, 1950. Further, the words ‘private limited’ must be affixed at the end of the name. Thereafter, the Registrar reviews the submissions and approves the most suitable option. This process takes about 3-5 working days.

A name is reserved by the RoC for a period of 20 days. All the other documentation required for filing of form for incorporation must be filed within 20 days of reserving the name. In case the documents are not filed with the ROC upon expiry of the 20 days the applicant would have to re-apply for reserving the name.

On the other hand, if the ROC does not reserve a name, the applicant would have to file the form again with two more name options and pay the fee again.

Involvement of notary, company register, governmental authorities

Filing for the Incorporation of Private Limited Company

Filing for the Incorporation of Private Limited Company

• Name of proposed Company;
• Full Address of registered office and correspondence address;
• E-mail ID, Telephone Number, of the proposed company;
• Authorized and Subscribed Capital of the company;
• Basic details of subscribers and First Directors such as their Name, Father`s Name, Date of Birth, Pan Card Number/ Aadhar Card Number/DL/Passport Number, Nationality, Occupation, Place of Birth, Residential Status, E-mail ID, Telephone Number, Present Address, Permanent Address, Duration of Stay at present address;
• Number of Shares Subscribed and designation and category of First Directors.
• Information specific to PAN such as Area Code, AO Type, Range Code, AO Number. etc for allotment of Pan Card Number of Company;
• Information specific to TAN such as Area Code, AO Type, Range Code, AO Number. etc for allotment of TAN of Company;
• Declaration from Practicing Professional certifying on the form that all the requirements of the Companies Act, 2013 and rules made there under regarding incorporation have been complied with.

The following documents are required to be filed along with the said electronic form SPICE 32:

• DIR-2 duly signed by all First Directors i.e. consent to become directors;
• Lease Deed/ Rent Agreement/Registry of the premises of Registered Office.
• Utility Bill (Not older than 2 Months) of the premises where registered office of the company is to be situated such as Electricity Bill/Water Bill/Gas Bill etc.NOC from the owner, in whose name the premises of the registered office is registered.

E-form INC 33 and INC 34 are required to be filed with the RoC on the MCA website. In these forms the e-MoA and e-AoA must be submitted. In certain circumstances scanned copies of MoA and AoA are allowed by the RoC.

Further, E- Forms INC-9 i.e. declaration by First Directors and subscribers must also be filed.

E-form AGILE-PRO-S has been introduced in 2021 by the MCA for easy company incorporation along with other registrations of the Goods and Service Tax, registration under Employee State Insurance Corporation Act, Employee Provident Fund Organisation, Opening of bank account and Shops and Establishment Registration.

The aforementioned E-Forms namely SPICE+, INC 33, INC 34, INC 9 and AGILE PRO S are linked forms and are to be filed together.

Subscribing to a Private Limited Company

Subscribing to a Private Limited Company means signing the subscribers’ names and subscribing to the shares under incorporation. The Act provides that each subscriber should add his/her address, description and occupation and sign the Charter Documents of the company in the presence of one witness. In the case of a company having share capital, the subscribers to the MOA should take at least one share each and state clearly the number and nature of shares taken by them.

Main costs, including registration and similar fees (excluding legal fees)

Registration Fees

All private limited companies whose authorized capital is less than INR 15,00,000 (Rupees fifteen lakh only) are not required to pay any registration fee and only stamp duty is required to be paid in such a case.

Registration fee payable for MOA is as follows :

1. For nominal share capital more than 15,00,000 and up to 50,00,000 - INR 51,000 + (INR 300 for every 10,000 or part thereof);
2. For nominal share capital more than 50,00,000 up to 1,00,00,000 - INR 1, 56,000 + (INR 100 for every 10,000 or part thereof);
3. For nominal share capital more than 1,00,00,000 - INR 2,06,000 + (INR 75 for every 10,000 or part thereof)

Registration Fee payable for AOA is as follows:

1. For nominal share capital 15,00,001 to 24,99,999 - INR 400;
2. For nominal share capital 25,00,000 to 99,99,999 - INR 500;
3. For nominal share capital 1,00,00,000 or more - INR 600.

Certificate of Incorporation of Private Limited Company

Upon the registration of the documents mentioned above and the payment of the necessary fees, the Registrar of Companies will issue a certificate that the company is incorporated. From the date of incorporation mentioned in the certificate, the company becomes a legal person separate from the incorporators.

Is a description of the anticipated business or purpose of the entity required for incorporation, formation or organisation?

N/A

Minimum number of incorporators / shareholders and residency requirements

As mentioned above, a minimum number of 2 shareholders and a maximum number for 200 shareholders are permitted as per the Act.

Minimum number of directors (or other applicable officers) and residency requirements

As mentioned above, only 2 directors are required to form a private limited company. However, one of the directors must be a resident of India, i.e.- he/she should have stayed in India for more than 182 days in the previous calendar year.

Minimum share capital, or equivalent, and payment requirements (including opening a bank account)

As mentioned in response to question 4 above, there is no minimum paid-up capital requirement to incorporate a private limited company. Further, as the company is a separate legal entity independent from its shareholders, it is required to have a separate bank account. The company may appoint a signatory to the same by passing a resolution to such effect.

Is the physical presence of incorporators / directors required in the jurisdiction for incorporation, formation or organisation?

No. The physical presence of the incorporators/directors/shareholders is not required in India for incorporation or formation of a private limited company. However, at least one director would be required to be present for the organisation and running of the company.

Is a tax identification number, or equivalent, required? If so, how is it obtained?

Yes. As the company is a separate legal entity with its own bank account, it would be required to obtain its own Permanent Account Number (PAN) Card and Tax Deduction Account Number (TAN), which is issued by the Income Tax Department of India. This is part of the incorporation process. On successful incorporation of the Company, the PAN and TAN are issued simultaneously with the Certificate of Incorporation of the company

What is the title of the applicable company registry?

Private limited companies are administered by the Registrar of Companies. It is a government body under MCA

What types of information must be filed at the (company) register, and which of them will it be publicly available, e.g.:

Kindly find below the information which is to be filed with the Registrar of Companies. Any modifications made to the below mentioned information must also be provided to the authorities. Further, all such information is publicly available on the website of the MCA upon payment of a nominal fee:

1. MOA;
2. AOA;
3. Share capital ;
4. List of shareholders and their respective share in the company. However, if an individual qualifies as a Significant Beneficial Owner of the company as per the tests provided under the Companies (Significant Beneficial Owners) Rules, 2018, the filings made subsequent to the qualification would not be publicly available;
5. List of directors;
6. Yearly audited accounts including profit and loss statement, balance sheet and annual accounts; and Charges on assets of the company;

 

What is the title of the executive body and its members? What are their main duties, tasks and responsibilities?

The executive body of a private limited company is its Board of Directors (“BoD”). The main duties and responsibilities of the BoD are as follows:

1. Trusteeship: The BoD act as trustees to the property and welfare of the company. Hence, the board must use the company’s property for the long-run gain of the company, but not for their personal use.
2. Formulation of Mission, Objection and Policies: The BoD formulates, reviews and reformulates the company’s mission, objectives and policies which form the basis for strategy formulation and implementation regimes for the functioning of the company.
3. Designing Organizational Structure: The BoD designs the structure of the organization based on the objectives, policies, environmental factors, degree of competition, role of quality, expectations of employees etc.
4. Selection of Top Executives: The BoD should assume the responsibility of screening and selecting the top executives who can formulate and implement the strategies. Chief executives are key personnel in the process of strategy implementation.
5. Financial Sanctions: The important financial decisions like authorizing and allocating finances to various projects, reserves, distribution of profit to shareholders and repayment of loans and advances etc., are taken by the BoD. Further, the BoD reviews the financial performance of the company from time to time and reformulates the financial policies.
6. Feed forward and Feedback: The BoD is required to obtain information from the external environmental factors and feed that information forward to various key points in the company in order to prevent possible hurdles and mistakes in the process of achieving organizational goals. Further, the BoD also obtains the information from internal sources of the organization, and feeds it forward to prevent possible failures in decision-making by the top-level executives. Thus, feedback of information helps the BoD to check and control the activities as it is vested with the ultimate responsibility for the success of the company.
7. Link between the Company and External Environment: The board acts a vital and continuous link between the company and external environment like government, other companies, social and economic institutions etc.

How are the members of the executive body appointed, dismissed and replaced?

Manner of Appointment

A new Director can be appointed to the company by the Board of Director by passing an ordinary resolution in an Extraordinary General Meeting or an Annual General Meeting. It is mandatory for any individual who is to be added as a Director of the company for the first time to get a DIN or Director Identification Number issued by MCA after submitting necessary documents. Thereafter, the requisite filings are made with the RoC to take the new director on record.

Disqualifications or Appointment of a Director

A person shall not be qualified for appointment as a director of an organisation, if:

• He/she is of unsound mind and stands so declared by a competent court;
• He/she is an undischarged insolvent;
• He/she has applied to be adjudicated as an insolvent and the application is pending;
• He/she has been indicted by a court of any offence, regardless of whether including moral turpitude or something else, and sentenced in regard thereof to detainment for at least six months and a time of five years has not passed from the date of expiry of the sentence.
• An order disqualifying him/her for appointment as a director has been passed by a court or Tribunal and the order is in force;
• He/she has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call;
• He/she has been convicted of an offence dealing with related party transactions under section 188 at any time during the last preceding five years; or
• He/she does not have the DIN.

Removal of Directors

A Private limited company, by ordinary resolution in an Annual general meeting or an extraordinary General meeting can remove a director. Special Notice about the resolution to remove a director should be given by the members to the company and the company must send a copy of the respective notice to the director to be removed. The director is given an opportunity of being heard in the meeting. If the director gives any written representation to the notice, then the said representation is given to all members. If the representation could not be given to all members, then the Director can request the said representation to be read out in the meeting. The members can pass an ordinary resolution, by simple majority and remove the director. The Company must within 30 days from the removal of a director file the requisite form and a copy of the resolution with the Registrar.

Resignation of Director

A director may also resign from his office by giving notice in writing. The Board shall, on receipt of such notice within 30 days inform the Registrar on Form DIR-12 and also place the fact of such resignation in the Director’s Report of the subsequent general meeting of the company and post the information on its website. The director should also forward a copy of resignation with detailed reasons for the resignation to the Registrar.

Replacement of Director

A private limited company may replace a director by first removing an existing director and appointing a new director in his/her place by the processes mentioned above.

Is it possible to appoint corporate directors or must all directors be natural persons?

All directors of a company are required to be natural persons. It is not permitted to appoint another entity as a director of a private limited company.

Is there a requirement to have non-executive directors? How are they appointed, dismissed and replaced? Do non-executive directors serve on a separate body (two-tier structure) or can a one-tier board (with executive and non-executives) be appointed, or is some alternate structure used?

Under the Act, there are no mandatory requirements to appoint non-executive directors in a private limited company. However, if the board so desires, a non-executive director may be appointed as per the provisions of the Act.

What is the title of the body of owners / shareholders / members, and what are the main tasks / responsibilities / powers of that body?

Owners / shareholders / members are referred to as “members” under the Act. The main responsibilities and powers of ‘Members’ are outlined below:

• Appointment of directors.
• Attend and vote at general meetings.
• Inspect statutory registers and minutes books.
• Receive copies of financial statements.
• Initiate winding up of the company.

However, if a company has different classes of shares, the rights of each class may be different, subject to the provisions of the charter documents of the company and the terms of issue of that class of shares. The same may be done in the following manner:

• With the consent in writing of three-quarters of holders of that class of shares.
• By means of a special resolution passed in a separate meeting of the holders of that class of shares.

Additionally, supplementary rights of the shareholders may also be agreed to in the shareholders' agreement and it would be prudent to incorporate the same in the charter documents of the company. These rights usually include:

• Board representations;
• Management rights;
• Access to additional information and records of the company; and
• Liquidation preferences.

Minority shareholders have certain additional statutory rights, including rights to:

• Requisition a general meeting;
• Approach the National Company Law Tribunal to cancel variation of rights;
• Approach the Tribunal in case of oppression and mismanagement; and
• Right to initiate a class action suit in specified circumstances.

What are the majority and quorum requirements for decisions by the shareholders? Can they be varied or changed?

Unless the AOA of the company provide for a larger number, the minimum quorum for a meeting in a private limited company is two members, who are required to be physically present. However, if the quorum is not present within half an hour from the designated time, the meeting shall be adjourned to the same day in the next week at the same time and place, or at any such date and time as the board may deem fit. If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed for holding the meeting, the members present shall be the quorum

Any special governance regimes (e.g. depending on size, being listed at a stock exchange, or other criteria)?

Private limited companies are governed by the Act and the Rules thereunder. Further, they are not listed on any stock exchange and no consequent special regimes would apply to it. Conversely, public limited companies if listed with a stock exchange will be governed by the Act as well as the rules formulated by the Securities Exchange Board of India.

What are the periodic accounting obligations incumbent upon the entity? To whom must those accounts be submitted?

All private limited companies are required to file their income tax returns with the Registrar of Companies on or before 30 September for the previous financial year.

Is the entity permitted to determine its own financial year?

No. The entity is not permitted to determine its own financial year. As per the Act, the financial year of a private limited company is required to be from 1 April to 31 March of the subsequent year. However, where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year.

Is the entity subject to any statutory (external) auditor obligations?

Board of Directors of all private limited companies are required to appoint a statutory auditor within 30 days from the date of registration of the company and in the case of failure of the Board to appoint such auditor, it shall inform the members of the company, who shall within 90 days at an extraordinary general meeting appoint such auditor and such auditor shall hold office until the conclusion of the first annual general meeting.

Subject to the aforesaid provisions, every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall hold office for 5 years from the conclusion of that meeting till the conclusion of its sixth annual general meeting and thereafter till the conclusion of every sixth meeting. Notice of his/her appointment is required to be given to ROC in e-form ADT-1.

Failure to appoint the auditors as per the provisions of the Act is an offence and the company may be subjected to fine of no less than INR 25,000 which may extend to INR 5,00,000 and every officer of the company who is in default of this requirement shall be punished with imprisonment for a term of upto one year or a fine of at least INR 10,000, but which may extend to INR 1,00,000.

Requirements to appoint other persons (officers, secretary, internal auditor / accountants). If so, what are their functions? Are there any residency requirements?

If the paid up capital of the private limited is more than INR 100,000,000 it would be required to appoint a company secretary. The secretary so appointed is responsible for:

• The efficient administration of the company, especially with respect to compliance aspects under the Act.
• Keeping the BoD informed of their legal responsibilities.
• Representing the company on legal documents.
• Ensuring that the company and its directors operate within the specified legal framework.
• Registering and communicating with shareholders.
• Ensuring the proper remittance of dividends.
• Maintenance of company records.
• Organizing the meeting of the BoD.
• Organizing General Meetings.
• Formulating the MOA and AOA
• Meeting the requirements of the Stock Exchanges.
• Issuing of Share, Capital and Restructuring.
• Pursuing acquisitions, disposal and mergers.
• Corporate Governance.
• Other relevant responsibilities.

What is the title designated for 'ownership interests' (e.g. shares, quota, interests, membership)?

The designated title for ownership interests under the Act is shares.

Are different classes of ownership interests possible? If so, what are some examples of different classes?

As per the Act, there are primarily 2 classes of shares which may be issued in a private limited company:

1. Equity Shares: Equity shareholders are the effective owners of the company based upon the percentage of shareholding. Such class of shareholders receive dividends in the proportion of their shareholding in the company. Thus, the amount received is not fixed as it is contingent upon the profits of the company. Equity Shares can be broadly bifurcated in 2 (two) different types:
1. Equity Shares with Voting Rights
2. Equity Shares with differential rights to dividend, voting or otherwise.
2. Preference Shares: Such shareholders receive dividends before the equity shareholders at a fixed rate. However, preference shareholders are not involved with the functioning of the company.

In the event a company issues different classes of shares, the privileges of each respective class of share may only be changed

1. With the written consent of 3/4th of holders of the respective class of shares; or
2. Through a special resolution passed on a separate meeting of the holders of the respective class of shares.

However, this would be contingent upon the charter documents of the company and the conditions of issue of the respective class of shares.

What documentation is required for the transfer of ownership interests?

The document required to transfer shares is a duly executed and stamped share transfer deed (in prescribed format i.e. Form SH-4) between the transferor and the transferee. The share transfer deed should be delivered to the company within 60 days together with the certificate relating to the securities, or if no such certificate is in existence, along with the letter of allotment of securities.

It is noteworthy that in a private limited company, it is permissible to place certain restrictions in the AOA on the transferability of shares. Consequently, foreign investors perceive this right with stable ownership and control.

Are there any additional formal requirements required for the transfer of ownership (notary, approvals, stamping, filings, corporate records)?

The share certificate must be attached to the share transfer deed and the same must be accepted by the company.

Are there any applicable stamp duties imposed when transferring ownership interests?

Yes. The share transfer deed must be adequately stamped as per the respective Stamp Act of the applicable State.

How are shares issued? (including information on payment obligations, registration requirements)

As per the Act, shares of a private limited company may be issued under multiple categories. The details of each category are provided below:

Rights Issue

If sanctioned by the AOA, shares are offered to the existing shareholders of the Company in the proportion of their current existing shareholding by issuing a Letter of Offer in this regard. The offer shall be open for a period not less than 15 days or such lesser number of days as may be prescribed not exceeding 30 days along with the right of renunciation. This offer period can be reduced in the case of a Private Company with the consent of ninety percent of the members of the Company. The offer letter shall be dispatched through registered post or speed post or through electronic mode or courier or any other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue. PAS -3 to be filed with the Registrar of Companies.

Private Placement

With the approval of the members via a Special Resolution, shares are allotted to a selected group of persons, but not more than 200 in a financial year, by the issue of Private Placement Offer Letter (PPOL) which does not carry any right of renunciation. The value of the investment should be at least INR 20,000 (Rupees twenty thousand only) on the face-value of the shares. Further, the subscription money must be paid either by cheque or demand draft or other banking channel and not by cash and be kept in a separate bank account in a scheduled bank. The said shares should be allocated within 60 days of receipt of the application money. If securities are not allocated (because of oversubscription or inability to raise enough capital), then the application money should be refunded within 15 days post the expiry of 60 days. If a company still fails to do so, then the company is liable to pay a 12% interest on the application amount. A complete record of private placement offers shall be prepared in Form PAS-5. PAS -3 to be filed with the Registrar of Companies within 15 days from the date of the allotment .

Preferential Allotment

This structuring entails the allotment of shares to any person being an existing shareholder or an outsider, either for cash or for a consideration other than cash. The price of such shares shall be determined by the Valuation Report.

Conversion of Loan or Debentures into Shares

By passing a special resolution, a company can convert its loans or debentures into shares. For shares to be convertible, a term has to be attached to the loan or debentures permitting the company to convert them into shares.

Bonus Issue

A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of its free reserves, securities premium or its capital redemption reserve. The company must have the right to undertake such issueance of shares outlined in the AOA. Further, an ordinary resolution must be passed at a general meeting authorising the same. All existing shares must be paid-up fully and the company must ensure that it has not defaulted in any repayments (statutory dues, debt securities or fixed deposits). Once a bonus issue is announced, it cannot be nullified or withdrawn.

Further information on equity contributions, e.g., non-cash payments on shares, (share premium) contributions without issuances of shares, can partially paid shares/ownership interests be permitted and what are the restrictions on them?

Issuance of shares for consideration other than cash

Yes, there can be non – cash consideration for shares provided the same is authorised by a special resolution, and the price of such shares is determined by a valuation report.

Share Premium Contribution without issuance of ownership interest

No, there is no provision for a share premium contribution without issuance of an ownership interest.

Partially paid-up shares

The Act permits issuance of partly paid - up shares. Usually, the shareholder and the company agree when the company can call on payment at the time of issuing the partly paid shares. Accordingly, if a shareholder owns partly paid shares, he or she must pay the remaining issue price at the company’s request . A company may, if so authorised by its articles, accept from any member, the whole or a part of the amount remaining unpaid on any shares held by him, even if no part of that amount has been called up., however, a member of the company limited by shares shall not be entitled to any voting rights in respect of the amount paid by him until that amount has been called up.

Further, no company can capitalise its profits or reserves for the purpose of issuing fully paid-up bonus shares unless the partly paid-up shares, if any outstanding on the date of allotment,are made fully paid-up.

A company may, if so authorised by its articles, pay dividends in proportion to the amount paid-up on each share.

Any requirements with respect to share cancellation, share repurchase and other capital reductions

There are two methods by which the company deal with cancellation of and repurchase of its ownership interests. These are through buy-back of shares or through reduction of share capital.

Buy-back of Shares

A company is permitted to buy back its own fully paid-up shares by passing a special resolution in its general meeting. A buy back of not more than 10% of the aggregate of the paid-up capital and free reserves of the company can be done with the approval of BoD. Further, the AOA must authorise this process of buy-back by the company. However, a company is not permitted to buy back its own shares through its subsidiary companies or any investment or group of investment companies. Further, it cannot buy back more than 25% of the aggregate of its paid-up capital and free reserves and followng the buy back, the debt capital ratio should not exceed 2:1. The buyback must be made out of the free reserves, securities premium account or proceeds of issue of any shares or securities of the company, except that of an earlier issue of the same kind of shares or securities. Once the process is completed, a further issue of the same category of shares cannot be made for a period of at least 6 months.

Reduction of Share Capital

A private limited company may reduce its share capital by passing a special resolution, subject to the confirmation by the National Company Law Tribunal and alter its MOA by reducing the amount of its share capital and of its shares accordingly. The Tribunal has the absolute power to confirm or reject the scheme of reduction

Reduction of share capital may be effected in one of the following ways:

1. Extinguishment or reduction of the liability on any of its shares in respect of the share capital not paid-up;
2. Cancelation of any paid-up share capital, which is lost, or is unrepresented by available assets. This may be done either with or without extinguishing or reducing liability on any of its shares; or
3. Pay off of any paid-up share capital, which is in excess of the wants of the company. This may be done either with or without extinguishing or reducing liability on any of its shares.

Any requirements with respect to distributions to shareholders?

Dividend is the profit of the company that is distributed to and among the shareholders in proportion to the amount paid-up on the shares held by them. It is usually payable for a financial year after the final accounts are ready and the distributable profit is ascertained. There are mainly two types of dividends: interim dividend and final dividend. Interim dividend can be declared by the BoD during any financial year out of the surplus in the profit and loss account and out of profits of the financial year in which such interim dividend is declared. Final dividend is a dividend that is said to be declared at the annual meeting of the company. A final dividend is a debt enforceable against the company. Such dividend is subject to dividend distribution tax at the rate of 15% plus surcharge. The company must pay the dividend distribution tax to the credit of the Central Government within 14 days of declaration of dividend or distribution of dividend or payment of dividend, whichever is earlier. No company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company of the current year

Can the owners or shareholders adopt a restrictive or governing agreement among themselves such as a Shareholders Agreement?

Yes. Shareholders are permitted to adopt governing agreements amongst themselves.

Which are the typical annual maintenance costs of maintaining the existence and legal good standing of such an entity (excluding legal fees)?

Annual maintenance cost under the Act inter-alia includes fees towards filing prescribed e-forms for appointment or resignation of auditors / directors, annual returns, financial statements, creation / modification / closing of charges etc. It would also include cost of maintaining minute books and statutory registers as required under the Act. The fees payable towards such compliances is very nominal provided the same are done within prescribed timelines.

Further, there will be expenses towards payment of statutory taxes on the entity and payment of rent if the property has been taken on lease.

What are the general corporate tax rates? (Specify if there is a national versus local distinction).

The present corporate tax rate is 30% for private limited companies. Further, there is no distinction between national and State taxes.

Summary of any specific matters, e.g. recent or prospective major legal developments

Not applicable.