Private Limited Company
The main difference between working as a sole trader and forming a private limited company is that a private limited company has its own legal status separate from its members. For registration as a private limited minimum two directors are required. Let’s discuss in detail about all the requirements and the procedure for private limited company incorporation.
What is the meaning of Private Limited company?
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:
- Limited Liability
Liability of Shareholders is limited.
- Pull in Funding
It is comparatively easy to attract investors.
- TEAM Building
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.
- Validity Improvement
As it is registered as a corporate body the credibility is enhanced, and it builds trustworthiness in the market.
- Continuity
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:
- Compliances
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.
- Cannot be listed
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.
- Restricted Shareholders
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.
Required Documents
| Acceptable Document | Document Type | Additional Details |
|---|---|---|
| Identity Proof (Voter ID / Driving License/ Passport) of Promoter and Director | . | . |
| PAN Card and Adhaar Card of Each Promoter and Director | . | . |
| Utility Bill as proof must be Latest not later than 2 months | . | . |
| Foreign National: Proof of Identity- Copy of passport duly attested foreign notary and apostilled | . | . |
| Proof of Registered Office | . | . |
| Two Colour Photographs of Promoter and Director | . | . |
| Foreign national:2 Photographs | . | . |
| Address Proof (Bank Statement / Electricity, Mobile, Telephone Bill) | . | . |
| NOC from the owner of the premises of Registered Office | . | . |
| Foreign National: Proof of Address- Any utility bill not older than 6 months duly attested foreign notary and apostilled | .. | . |
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FAQs
You Ask, We Answer
Yes, a Foreign National or an NRI can be a Director in a Private Limited Company in India after obtaining DIN. At least one Director on the Board of Directors must be a Resident in India.
Minimum authorized capital of Indian Rupees 100, is required to form a private company in India. There is no upper limit. Although paid up capital can be less than Rs. 1 Lakhs.
After incorporation of company, it will be active and in-existence as long as the annual compliances are met regularly. It is necessary to comply with annual compliances, otherwise the Company will become a Dormant Company and maybe strike off from the register after a period of time.
We can incorporate a Pvt. Ltd. Co. in India within the time frame of two to six weeks. Also it will depend upon submission of relevant documents by the client and speed of Government Approvals. For completing registration without any delay, please choose a unique name of your Company and ensure that you have all the required documents prior to starting the registration process.
Digital Signature makes the identity of the sender or signee electronically while filing documents through the Internet. It is mandated by the Ministry of Corporate Affairs (MCA) that the Directors sign some of the application documents using their Digital Signature. Therefore, a Digital Signature is necessary for all Directors of a proposed Company.
100% FDI is allowed in India in many of the industries under the Automatic Route. They are called RBI Approvals - if the percentage allowed for various Sectors is met. Also, an application for approval is required for automatic approvals. Some special permission and FIPB approvals could be obtained to invest over and above the regular percentage allowed for various Sectors.
For incorporation, minimum of two shareholders are required and maximum of up to 200 shareholders are allowed in a private limited company. The shareholders include natural persons or companies, alongwith foreign companies.
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