Characteristics/Features of Private Limited Company

Who is a Private Limited Company?

A private limited company on the other hand refers to business entity that a few private individuals or companies own. This kind of business structure has added advantages in that it shields the shareholders from any limited liability. If the company is in any financial problems, the assets of the shareholders are safe and their responsibility is compromised by the number of shares owned by them.

Given the fact that the startup ecosystem is becoming increasingly popular throughout the country, more and more people are starting their businesses. Therefore, let me introduce the basic types of business incorporation which exist presently, namely sole trader, limited company as well as private limited company. The two types have their strengths and weaknesses of LLP, and the selection wipes the difference between the success of the business.

As per clause (68) of Section 2 of Companies Act, 2013, private company is understood as a company that:

• Incorporation of minimum paid-up share capital required or prescribed by the law

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

• Bars membership to a maximum of 200, this being the case where it is 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:

• Membership Structure : For forming private limited company the minimum requirement of share holders is two. But in order to remain a small entity there is a condition that a club should not exceed two hundred members. Moreover, there should be two directors in order to be in charge of managing the certain company’s activity.
• Limited Liability Protection : The legal structure of a private limited company is one of its most important benefits or prospects for its owners and managers. This means that in times of embezzlements or affected losses or debts or otherwise, the risk of each member or shareholder is limited. Yes, they may be compelled to dispose of their shares in order to pay off their dues, yet their securities are safe.
• Separate Legal Entity : A private limited company is an artificial legal person, which has its own legal existence and has perpetual duration. This makes it possible for the continuity of the company even when all its member has died, as far as the law is concerned. Despite the lives being entangled with those of other shareholders or members, the company’s life is not impacted at all unless it is formally dissolved consequently to a resolution.
• Minimum Paid-Up Capital Requirement : Every private limited company requires a minimum of ₹ 1 lakh paid-up capital to start operations. The government entity called the Ministry of Corporate Affairs (MCA) has authority to enhance the minimum paid-up capital threshold over time. Your company must possess sufficient financial strength to sustain its business activities according to this requirement.

Learn more about : Private Limited Company

Registering a Private Limited Company

To register a private limited company, you need to fulfill certain statutory requirements. Below are features that ought to be fulfilled:

• Members and Directors

1. The membership numbers for private limited companies range between two and two hundred individuals. The directors need to fulfill these requirements:
2. Every director must possess Director Identification Number that will be assigned by Ministry of Corporate Affairs.
3. One director out of the company directors must be resident in India, that is he/she spends not less than 182 days in the country in the last calendar year.

• Choosing a Company Name

1. Choosing a company name may sometimes be technical altogether. A private limited company must ensure its name includes three essential elements:

   1. Main name
   2. Activity to be carried out
   3. It is followed by “Private Limited Company”

Pro Tip: It is required to send at least 5-6 names to ROC for their approval as no two companies cannot have the same name. You also have to ensure that none of the submitted names are the same as the company names you are conducting your business with.

• Registered Office Address

1. On registration, the company is to present to ROC the registered office which is permanently fixed. All the documents of the company are located at this address, and all the main affairs are also dealt with.

• Obtaining Essential Documents

1. Yet, for any organization or corporation to engage in electronic submittal of documents, she or it must secure a digital signature certificate for the honor of warranting document nonduplicate. Furthermore, if the company engages professionals in various activities such as secretrial services or providing of accounts services, chartered accountants or cost accountants and so on, the certificate of the professionals are required.

Different Company Registration Options

Business organization if you are an entrepreneur living in India, you will be glad to know that you have various options when it comes to company registration. Here's a breakdown of the six main options:

• Sole Proprietorship : Suitable for the single or a self-employed person, sole trader gives the carrying out of complete control of the business. But it does not protect the owners from personal liability, meaning that an individual’s assets can be brought to the company.
• Partnership Firm : Partnership firms are best suitable for business carried out by two or more partners and characterize the sharing of profit as well as liability. This one is governed by the Partnership Act 1932 and it is suitable for business that intend to operate in partnership.
• Limited Liability Partnership (LLP) : A more flexible structure than the Partnership while it has limited liability like a Company, the LLPs are governed by the LLP Act 2008. This one is ideal for those firms that need limited liability protection as well as some of the perks of a partnership.
• One-Person Company (OPC) : OPCs can be used by individuals carrying on business on their own account and provide corporate status coupled with limited liability. This option is convenient for a person, who has certain individual entrepreneurship but wants to have the formal business structure.
• Private Limited Company (PLC) : Consequently, limited liability to shareholders makes PLC suitable for the medium to large business that intends to raises capital.This option gives a firm strategic model to grow and expand its business.
• Public Limited Company : Suitable to big and complex forms of business organizations, the public limited companies can be traded to the public and shareholders’ responsibility is limited to the amount they have invested. It can be extolled as ideal for those little known firms eager to float in the stock market with an aim of attracting capital from the public.

All You Need to Know About Advantages and Disadvantages of LLP

Documents Required for Applying Private Limited Company

India being a country with use of registered agents in the process of company formation to provide the necessary documentation and have following documents ready while applying to the authorities : Here are the 10 essential documents required for company registration:

• Identity Proof

1. Verify the identity of directors with documents such as:
   1. address proof (anyone) passport (for foreign directors) PAN card (for Indian directors)
   2. Passport (only for the directors reside in the other countries)

• Address Proof

1. Confirm the residential address of directors with documents like:
   1. Utility bills
   2. Rental agreements

• Director Identification Number (DIN)

1. Register each director with a special DIN that can be got from the Ministry of Corporate Affair.

• Digital Signature Certificate (DSC)

• Memorandum of Association (MoA)

1. Prepare a legal document that will state out the general objectives and the areas of specialization of this company.

• Articles of Association (AoA)

1. Prepare a document containing the policies as to the internal organization of the company.

• Declaration by Directors and Subscribers

1. Ask directors and subscribers to provide a statement on legal compliance for formation of the company.

• There is no requirement of no no-objection certificate from the landlord as well.

• Shareholding Pattern of the Proposed Company

1. Purposes of dissemination of share include summarising the distribution of shares with shareholders of the company.

• Proof of Registered Office Address

1. Provide documents which substantiates the physical address of the company as register and operation.
2. Make sure that you make copies of these documents accurate and complete so that it will not cause a problem in the company registration.

Registration Procedure of A Pvt Ltd Company

The process of forming a private limited company in India is not an easy one, but when divided into parts, it becomes easier. That is an all inclusive guide that can assist anyone with the registration process:

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

• Step 1: Choose a Unique Name : Choose a name that you think best suits your business type and what you have in mind for it, but it must not be the same as that of other businesses, or anyone else trademarked. Check name availability on the official website of the Ministry of Corporate Affairs or other appropriate authority of your state/union territory.
• Step 2: Obtain Digital Signatures : Obtain Digital Signature Certificates (DSC) of your Companies proposed Directors & Shareholders from any agency/vendor who is registered with the MCA or the Certifying Authority under the Information Technology Act, 2000. Electronic signatures are used when you submit an electronic document to the local authorities and for confirming your identity.
• Step 3: Obtain Director Identification Number (DIN) : Submit application for DIN online through the MCA portal by filing the form DIR-3 along with the documents of identity proof, address proof and photographs of each of the directors for applying for DIN.
• Step 4: Draft Memorandum and Articles of Association : Prepare a Memorandum of Association (MOA) which incorporates the main aims, objects and business of the company and the Articles of Association (AOA) which gives legal provisions regarding the working and administration of a company. You can draft these documents via the MCA portal using the SPICe+ form besides the forms developed by the MCA.
• Step 5: Get Consent and Declarations : Duly completed the form DIR-2 with the Directors’ consent and affixed their Digital Signature to substantiate the act. Shareholders are required to present their statements of compliance with the Companies Act, 2013, and the rules made thereunder by entering the details on Form No. INC 9 and affixing their Digital Signature Certificate (DSC).
• Step 6: Apply for Company Name Approval : You ‘Apply for Name Approval’ and send the Name Approval application along with the necessary documents to the Registrar of Companies (RoC) of the state or Union territory of operation. To put in an application for name approval you can do it online using the MCA portal via the SPICe+ form and with the fees that are required.
• Step 7: File Incorporation Documents : Register your private limited company and obtain the incorporation documents by filing the SPIC e+ master online at the MCA link for a prescribed cost. All legal documents are needed with the Companies Form 7 or SPICe+ which must include the Memorandum of Association, Articles of Association, and others.
• Step 8: Pay Registration Fees : Submit the registration fees which depend on the number of authorized share capital and the state or union territory of your company. To make the application fees payment, you are able to use the SPICe+ form from the MCA portal and the payment gateway for the fees.
• Step 9: Verification and Approval : The ROC will review the documents provided and if all the measures required have been provided the Certificate of Incorporation is issued with a download option from the MCA site. This legal document cosolidates your company registration and lets the world know that you do exist.
• Step 10: Obtain PAN and TAN : Obtain the AGILE-PRO form for applying for both a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) through the MCA portal and the payment gateway. PAN stands for Permanent Account Number which is a 10 digit alphanumeric digit which is used to identify your company for tax purposes while TAN is also a 10 digit identification code for your company to deduct & also to collect tax at source from the amount to be paid by your company.
• Step 11: Open a Bank Account : You have to open a current account of your company and deposit the required minimum paid-up capital which is ₹ 1 lakh for a private limited company.
• Step 12: Obtain Business Licence : Licenses and permits which are required may depend on the type of business to be undertaken. These may include:

1. Trade license from Municipality or Panchayat

2. Sanction of Environmental Department and Pollution Control Board

3. The industrial permission from the appropriate department of Industrial policy and Promotion (DIPP).

4. Of the various types of certifications available for establishing quality standards BIS certification is one of the most recognizable.

5. Registration number of the trademark, patent or design issued by the IPO

• Step 13: Compliance with Taxation : Get familiar with GST and other taxes and then sign up for them. Applicable if your total turnover in a financial year is more than ₹ 40 lakhs ( ₹ 20 lakhs in specified categories).
• Step 14: Commence Business Operations : Once the above procedure is done, your private limited company is now set to start its business.

Read More: This paper aims at discussing the process of converting a public limited company to a private limited company.

How Much are the Registration Fees of a Private Limited (Pvt Ltd) Company?

The incorporated registration fees of Private in India involves share capital, number of directors, state specific stamp duty, and other costs. Below is a trend of the estimated costings regarding the same;

The Registration Process of a Private Limited Company & Their Registration Time Line

• The response to this specific question is little when compared with simpler questions, because the response depends on several components which might alter the registration process. How long does it take, documents required, business available, appropriateness of the company name are some of the factors that exist in the timeline of the process.
• The entire procedure of registration of a private limited company may take, on average, 12–18 days in India. Yet, it may take longer or shorter depending on the time it takes to complete each step, or the workload of the government office to which the application is submitted.

Advantages of Private Limited Company

• Limited Liability : Generally, the liability of the members in a private limited company is limited, that is, the members’ funds are not at risk in the event of business failures of the company. In most cases, shareholders are only under obligation to dispose of their assets for consideration where the company is insolvent or cannot otherwise meet its bills.
• Several Shareholders : Starting a private limited company does not necessitate a minimum of seven shareholders like the public company but only two are required. This means that, people who want to start their companies will not need many people to invest in the business since it does not require mass investments.
• Ownership : The ownership of private limited company belongs to the investors, founder, and management shareholders, and they have a right to transfer the share to others. This is the case because it enables the company to have more room when it comes to organizing the ownership of the company and other issues relating to procurement of new investors.
• Uninterrupted Existence : It also tells that private limited company is an independent legal entity and always remain alive even after the death of any member or departure of any member. This makes the company strong and defendable which in turn makes it favorable for any business to invest in as it will take a long time to fall.

Disadvantages of Private Limited Company

• Administrative Burden: Recruitment in a private limited company might not be very costly but there are many paper forms to complete and many requirements that the company is expected to fulfill including preparing statutory records, preparing and submitting the company’s annual returns, and organizing the annual general meetings.
• Costs and Financial Obligations: In order to incorporate and run a private limited company one may require to spend a fair amount of money on registration fees, annual filing fees and auditor fees.
• Restrictions on Company Activities: The operations of the private limited companies are somewhat regulated through certain restrictions for example they cannot invite the public to subscribe for securities or accept money from the public in the form of deposits.
• Limited Stock Exchange Access: For instance, while most private limited companies are legally restricted from floating their securities in an exchange, they may have a problem of poor capital mobilization.
• Personal Guarantees and Liability:The owners or the directors of the private limited company may be asked to offer their personal guarantee, the case that may raise their responsibility.

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