Section 2(68) of Companies Act, 2013 defines private companies as the companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the essential criterion that differentiates private companies from public companies. This Section further states that private companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.
Earlier this definition had prescribed a minimum paid-up share capital of Rs. 1 lakh, but an amendment in 2005 removed this requirement. But now private companies can have a minimum paid-up capital of any amount.
What are the Features of Private Limited Company?
1. No minimum capital required
There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now. So you can have the minimum paid up capital of any amount.
2. Minimum 2 and maximum 200 members
A private company can have a minimum of just two members (but just one is enough if it is a One Person Company), and a maximum of up to 200 members.
3. Transferability of shares restricted
Private companies cannot freely transfer their shares to the public like public companies. Due to this reason stock exchanges never list private companies.
4. “Private Limited”
All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.
5. Privileges and exemptions
Private companies are not allowed to freely transfer their shares to involve limited interest by members; the law has granted them several exemptions that public companies do not enjoy.
What are the Types of Private Limited companies?
There are three types of private companies depending on members’ liabilities:
1. Limited by shares
The liability of the members is limited to the amount unpaid to the company with respect to the shares held by them.
2. Limited by guarantee
Here the members’ liabilities are limited to the amount of money they guarantee to pay in case the company is wound-up.
3. Unlimited liability
The liability of members is unlimited in this type of private companies. Personal assets can be seized and sold when the company is being wound-up.
Also the small companies having limited paid-up share capitals and turnover amounts, as defined under Section 2(85), are treated as private companies under Indian company law.
What are the Advantages of Private Limited Company?
The Companies Act has given certain benefits and exemptions to private companies that public companies do not possess. These benefits accord them greater freedom in conducting company affairs. Here are some examples of them:
Liability of Shareholders is limited.
It is comparatively easy to attract investors.
By offering stocks and proprietorship to the worker’s gifts can be held. This procedure is based on a scaling where stock offering holds abilities.
As it is registered as a corporate body the credibility is enhanced, and it builds trustworthiness in the market.
Even after the demise and exit of any investor, the firm proceeds and its reality is protected.
- Foreign Direct Investment
It takes into account coordinating foreign deposits/ investments through a simple channel.
What are the Disadvantages of Private Limited Companies?
Private companies also have the following limitations:
Private limited company has to follow and fulfil compliances as per companies act, Income Tax Act and other applicable laws and non compliances of the same attract heavy penalties.
In stock trade shares can’t be cited, i.e., the posting of the organizations for the first sale of stock isn’t conceivable.
- Division of Proprietorship or Ownership
A noteworthy hindrance of a private restricted organization is that it requires at least 2 executives and investors for its consolidation, which prompts the division of offers.
In a Private Limited Company the number of investors or individuals cannot exceed the upper limit as defined in company Law.
What is the private limited company registration process?
1. Digital Signature of Director
Company Incorporation application is filed online and the process starts with the issuance of Digital Signatures of class two.
2. Company Name Approval
The Company name should be unique and not be the same or similar to an existing company, LLP or a trademark.
3. Company Incorporation
For incorporation of the company one single application (spice 32) is filed with the approval, and the Certificate is issued.
4. Bank Account
The next step is the current Bank A/c opening and then filing for the compliance for commencement of business.