What Is a Private Limited Company?

 

A private limited company is a type of business entity that private stakeholders own. One of the key benefits of this structure is that it offers limited liability protection to its shareholders. If the company faces any financial difficulties, the shareholders' assets are protected, and their liability is limited to the number of shares they hold.

 

With the startup ecosystem thriving nationwide, more and more people are leaping to start their businesses. As a result, it's essential to understand the different types of business registrations available, including sole proprietorship, limited liability company, and private limited company. Each type has its own set of advantages and disadvantages of LLP, and choosing the right one can make all the difference in the success of your venture.

 

According to Section 2 (68) of the Companies Act, 2013, a private company is defined as a company that:

 

• Has a minimum paid-up share capital as prescribed by law

• Restricts the transfer of its shares through its articles of association

• Limits the number of its members to 200, except in the case of a One Person Company

• Prohibits any public invitation to subscribe to its securities

 

Characteristics of a Private Limited Company

 

Here are some of the main features of a private limited company:

 

1. Membership Structure

To establish a private limited company, you need a minimum of two shareholders. However, to maintain its small entity status, there's a cap of 200 members. Additionally, you'll need two directors to manage the company's operations.

 

2. Limited Liability Protection

One of the significant advantages of a private limited company is its limited liability structure. This means that in the event of losses or debts, the liability of each member or shareholder is capped. While they may need to sell their shares to repay debts, their assets remain protected.

 

3. Separate Legal Entity

A private limited company is a separate legal entity that enjoys perpetual succession. This means that even if all members pass away, the company remains in existence in the eyes of the law. The company's life is not affected by the lives of its shareholders or members unless it's formally dissolved through a resolution.

 

4. Minimum Paid-Up Capital Requirement

To operate a private limited company, you need to maintain a minimum paid-up capital of ?1 lakh. This amount may increase over time, as prescribed by the Ministry of Corporate Affairs (MCA). This requirement ensures that your company has a solid financial foundation to support its operations.

 

Registering a Private Limited Company

 

To register a private limited company, you need to fulfill certain statutory requirements. Here are the key conditions to meet:

 

1. Members and Directors

• A private limited company must have a minimum of two and a maximum of 200 members. Additionally, the directors must meet the following conditions:

• Each director must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs.

• At least one director must be a resident of India, having stayed in the country for at least 182 days in the previous calendar year.

 

2. Choosing a Company Name

• Selecting a company name can be a technical task. A private limited company must ensure its name includes three essential elements:

• Main name

• Activity to be carried out

• The suffix "Private Limited Company"

Pro Tip: It's essential to submit 5-6 name options to the Registrar of Companies (ROC) for approval, as no two companies can have the same name. Ensure the submitted names don't closely resemble any existing company names.

 

3. Registered Office Address

After registration, the company must file its permanent registered office address with the ROC. The company's main affairs are conducted at this address, and all documents are stored.

 

4. Obtaining Essential Documents

Every company must obtain a digital signature certificate for electronic document submission to verify document authenticity. Additionally, if the company employs professionals (such as secretaries, chartered accountants, or cost accountants) for various activities, certifications from these professionals are necessary.

 

 

Different Company Registration Options

 

As an entrepreneur in India, you have several company registration options, each catering to different business needs and offering unique benefits. Here's a breakdown of the six main options:

 

1. Sole Proprietorship

Ideal for individual entrepreneurs, sole proprietorship offers complete control over the business. However, it lacks limited liability protection, leaving personal assets at risk.

 

2. Partnership Firm

Suitable for businesses run by two or more individuals, partnership firms allow shared profits and responsibilities. Governed by the Partnership Act 1932, this option is ideal for collaborative ventures.

 

3. Limited Liability Partnership (LLP)

Combining the flexibility of a partnership with the limited liability of a company, LLPs are regulated under the LLP Act 2008. This option is perfect for businesses seeking a balance between liability protection and partnership benefits.

 

4. One-Person Company (OPC)

Designed for solo entrepreneurs, OPCs offer corporate status and limited liability protection. This option is ideal for individual entrepreneurs looking to establish a formal business structure.

 

5. Private Limited Company (PLC)

Offering limited liability to shareholders, PLCs are suitable for medium-to-large businesses seeking to raise capital. This option provides a robust framework for growth and expansion.

 

6. Public Limited Company

Ideal for large businesses, public limited companies allow the public trading of shares and limit shareholders' liability to their share value. This option is perfect for businesses seeking to go public and raise capital from a wider audience.

All You Need to Know About Advantages and Disadvantages of LLP

List of Documents Required for Private Limited Company

 

To register a company in India, you must gather and submit various documents to the relevant authorities. Here are the 10 essential documents required for company registration:

 

1. Identity Proof

Verify the identity of directors with documents such as:

• PAN card (for Indian directors)

• Passport (for foreign directors)

 

2. Address Proof

Confirm the residential address of directors with documents like:

• Utility bills

• Rental agreements

 

3. Director Identification Number (DIN)

Obtain a unique DIN from the Ministry of Corporate Affairs for each director.

 

4. Digital Signature Certificate (DSC)

Acquire an electronic signature to ensure the authenticity of documents filed online.

 

5. Memorandum of Association (MoA)

Create a legal document outlining the company's objectives and scope of operations.

 

6. Articles of Association (AoA)

Draft a document outlining the rules and regulations governing the internal management of the company.

 

7. Declaration by Directors and Subscribers

Obtain a formal statement from directors and subscribers confirming compliance with legal requirements for company incorporation.

 

8. No Objection Certificate (NOC) from the Landlord

Get consent from the landlord permitting the use of premises as the company's registered office.

 

9. Shareholding Pattern of the Proposed Company

Prepare an overview of the distribution of shares among shareholders in the company.

 

10. Proof of Registered Office Address

Submit documentation confirming the address where the company is registered and operates from.

Remember to ensure the accuracy and completeness of these documents to avoid any delays or issues in the company registration process.

 

How to Register a Pvt Ltd Company?

 

Registering a private limited company in India can be a complex process, but breaking it down into manageable steps can make it more accessible. Here's a comprehensive guide to help you navigate the registration process:

 

For a private limited company Registration in India the following steps are compulsory:

 

Step 1: Choose a Unique Name

Select a unique name that reflects your business's identity and vision, ensuring it's not already used by another company or trademarked by someone else. Verify name availability on the Ministry of Corporate Affairs (MCA) website or through the relevant regulatory authority in your state or union territory.

 

Step 2: Obtain Digital Signatures

Acquire Digital Signature Certificates (DSC) for your company's proposed directors and shareholders from an authorized agency or vendor registered with the MCA or the Certifying Authority (CA) under the Information Technology Act, 2000. Digital signatures are essential for filing online documents with government authorities and verifying your identity and authenticity.

 

Step 3: Obtain Director Identification Number (DIN)

Apply for a Director Identification Number (DIN) online through the MCA portal by filling out the form DIR-3 and uploading the required documents, including identity proof, address proof, and photographs for each of the directors.

 

Step 4: Prepare Memorandum and Articles of Association

Create a Memorandum of Association (MOA) that defines your company's main objectives, scope, and activities, and an Articles of Association (AOA) that outlines the rules and regulations for the management and administration of your company. You can prepare these documents online through the MCA portal using the SPICe+ form and the templates provided by the MCA.

 

Step 5: Get Consent and Declarations

Obtain consent from directors to act as directors by filling out the form DIR-2 and attaching their DSC. Shareholders must provide their declarations of compliance with 

the Companies Act, 2013, and the rules made thereunder by filling out the form INC-9 and attaching their DSC.

 

Step 6: Apply for Company Name Approval

Submit the name approval application with the required documents to the Registrar of Companies (RoC) of the state or union territory where your company will be registered. You can apply for name approval online through the MCA portal using the SPICe+ form and paying the prescribed fees.

 

Step 7: File Incorporation Documents

File the incorporation documents for your private limited company online through the MCA portal using the SPICe+ form and pay the prescribed fees. Attach the required documents, including the MOA, AOA, and others, along with the SPICe+ form.

 

Step 8: Pay Registration Fees

Pay the registration fees, which vary depending on the amount of authorized share capital and the state or union territory where your company is registered. You can pay the fees online through the MCA portal using the SPICe+ form and the payment gateway.

 

Step 9: Verification and Approval

The RoC will carefully assess the documents, and if they meet all requirements, they will issue the Certificate of Incorporation, which can be downloaded from the MCA portal. This legal document confirms the existence and registration of your company.

 

Step 10: Obtain PAN and TAN

Apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) online through the MCA portal using the AGILE-PRO form and the payment gateway. PAN is a 10-digit alphanumeric code used to identify your company for tax purposes, while TAN is a 10-digit code used to deduct and collect tax at source from payments made by your company.

 

Step 11: Open a Bank Account

Open a bank account in your company's name and deposit the minimum capital required, which is ?1 lakh for a private limited company.

 

Step 12: Obtain Business Licence

Obtain necessary licenses and permits, which may vary depending on the nature of your business. These may include:

• Trade license from Municipal Corporation or Panchayat

• Environmental clearance from the Pollution Control Board

• The industrial permit from the Department of Industrial Policy and Promotion (DIPP)

• Quality certification from the Bureau of Indian Standards (BIS)

• Trademark, patent, or design registration from the Intellectual Property Office (IPO)

 

Step 13: Compliance with Taxation

Register for GST and comply with other tax obligations. You must register for GST if your annual turnover exceeds ? 40 lakh (?20 lakh for special category states).

 

Step 14: Commence Business Operations

After completing the above procedure, your private limited company is ready to commence its operations.

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Read More: Conversion of a Public Company into a Private Company

What Are the Registration Costs for a Private Limited (Pvt Ltd) Company?

 

The registration charges for a Private Limited Company in India vary depending on several factors, including the share capital, number of directors, stamp duty of the state where you want to register the company, and other fees. Here's a breakdown of the estimated costs involved:

 

What Is the Registration Timeline for a Private Limited Company?

 

The answer to this question is not straightforward, as it depends on various factors that can influence the registration process. The availability of the company name, the documents required, and the workload of the government authorities all play a role in determining the overall timeline.

On average, the registration process for a private limited company in India can take around 12-18 days. However, this timeframe can vary depending on the time taken to complete each step and the workload of the government office processing the application.

 

Advantages of Private Limited Company

 

Limited Liability

 In a private limited company, the liability of the members is limited, which means that their assets are protected in case the company fails. Shareholders are only liable to sell their assets for payment if the company is unable to meet its financial obligations.

 

Several Shareholders 

Unlike a public company that requires a minimum of seven shareholders, a private limited company can be started with just two shareholders. This makes it easier for small businesses and startups to get started without the need for a large number of investors.

 

Ownership 

The ownership of a private limited company is divided among investors, founders, and management, who can transfer and sell their shares to others. This allows for greater flexibility in managing the company's ownership structure and attracting new investors.

 

Uninterrupted Existence 

A private limited company is a separate legal entity that continues to exist even after the death or departure of any member. This ensures the company's continuity and stability, making it an attractive option for businesses looking for long-term success.

 

Disadvantages of Private Limited Company

 

Administrative Burden: 

Running a private limited company involves a lot of paperwork and administrative tasks, such as maintaining statutory records, filing annual returns, and holding annual general meetings.

 

Costs and Financial Obligations: 

Setting up and maintaining a private limited company can be expensive, with costs including registration fees, annual filing fees, and auditor fees.

 

Restrictions on Company Activities: 

Private limited companies have some restrictions on their activities, such as not being able to issue public invitations for subscribing to their securities or accepting deposits from the public.

 

Limited Stock Exchange Access: 

Private limited companies are not allowed to list their shares on a stock exchange, which can limit their ability to raise capital.

 

Personal Guarantees and Liability:

 In some cases, the directors of a private limited company may be required to provide personal guarantees, which can increase their liability.

 

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