What is a Private Limited Company
Starting a business is the toughest decision one can take but it gives you the maximum fulfillment of your dreams and desires. Your decision to begin your entrepreneurial journey starts with the decision of selecting the right business structure to follow. Anyone can choose a private limited company to build a scalable business. It’s the most famous legal structure for the business with multiple benefits such as limited liability, separate legal entity, ease in share transfer etc.
Private limited company is governed by MCA (Ministry of corporate affairs) under Companies Act, 2013. Private limited company can be registered with minimum of 2 directors and 2 shareholders, where shareholder and director can be same person. The maximum number of directors can be 15 and the maximum members can be 200.
The shares division depends on the percentage of the capital amount invested in a company. The profit is also divided as per the share holding of the shareholders.
The capital in a private limited company is the amount which shareholders are planning to introduce in the company. In a private limited company, the capital amount can be –
• Authorized share capital
• Paid up capital.
The minimum amount of authorized share capital, with which a company can initiate the registration process, is 1 lac INR. However, there is minimum cap on limit of paid up capital.
Just like any other company, private limited company also has a certain set of rules and guidelines which are confined in MOA and AOA. Memorandum of Association (MOA) and Articles of Association (AOA) are the master documents of the private limited company determining the guidelines, mutual rights and duties between directors and shareholders. MOA comprises of 6 clauses –
• Name clause – under this the name of the company is specified. The name is selected as per the Rule 8 of Companies Act, 2013. It should not be identical to any existing company’s name or with any trademark.
• Registered Office clause – This clause helps to determine the state jurisdiction of Registrar of Companies.
• Object clause – In this clauses, one defines the object of the company. The object comprises of all the activities or work to be carried in the organization. The company involve in any activities outside their company’s object.
• Liability clause – under this clause, the liability of the shareholders is defined. In case of the company limited by shared, the liability of the members or the shareholders is restricted by the amount each member has agreed to contribute.
• Capital clause – This clauses defines the maximum number of share the company can issue AOA (articles of association) defines the set of rules and regulations for the management. It lays down the internal guidelines to be followed in the organization. It consist of the rules regarding the transfer of shares, an audit of the company, voting rights of the shareholders, the appointment of directors, share capital etc.
Eligibility Criteria for Private Limited Company Registration –
• The company can be incorporated with have minimum of 2 directors and maximum 15 directors.
• The number of members cannot be more then 200
• In case of foreign shareholders or directors, at least one director should be the citizen of India.
• Minimum share capital required to form up Private Limited Company is Rs1 lakh. However, there is no minimum cap on paid up share capital.
Steps to Incorporate a Private Limited Company in India?
Step 1: Obtain DSC (Digital Signature Certificate)
• It’s necessary to apply for a Digital signature of the designated partners before starting the private limited company registration.
• The DSC is important as all the documents before submission are required to be digitally signed.
Step 2: Apply for DIN (Director Identification Number)
• The application for DIN is mandatory for each director.
• The DIN application has to make in Form DIR-3.
Step 3: Name Approval and its Reservation
• The private limited company name approval is an important step to establish a company.
• RUN (Reserve Unique Name) form is filled for the reservation of the name given by Private Limited Company.
• The name provided must be as per the rule 8 of Company Registration Act, 2013
Step 4: Preparation of form INC 33 and INC 34
• This step involves the drafting of MOA and AOA. These are drafted under INC 33 and INC 34 respectively.
• If required we can file for ESI, EPF, GST at the same time under the form names AGILE
Step 5: Incorporation of private limited
• For the Incorporation of private limited company, the incorporation forms (INC 33, INC 32, AGILE) are uploaded with SPICe form INC 32. These are to be filled with Registrar of companies of the respective state in which the registered office of the company is located.
Step 6: Approval of the documents
• Once the SPICe form INC– 32 is approved, the registrar provides the company identification number (CIN) along with PAN and TAN of the company
Advantages of Private Limited Company Registration
• Limited Liability of shareholder
• Separate Legal Entity: Company legal entity are separate than its shareholders/promoters.
• Perpetual Existence
• Capacity to Sue and to be Sued
• A Private limited company can sale, purchase and own the property like individual on its own name.
• Private limited companies can easily avail financial assistance/borrowing from banks and financial institution compared to another form of entity.
• Easy funding from investors
• Continuity of existence
Benefits & Liabilities of a Private Limited Company
Benefits of a Private Limited Company
• Shields personal assets from business liability, limits liabilities of Directors.
• The Private Limited Company (Pvt. Ltd) continues to exist even after the death of the Shareholders
• Open doors to raise capital from a venture capitalist, angel investor, financial institutions etc.
• Creates brand value as private limited structure is more transparent compared to other business structures.
• Ownership gets transferred by just transferring shares.
• Private Limited Company is a unique identity, can own/acquire and alienate, property in its name. Property owned could be anything like copyrights, patents, machinery, building, intangible assets, land, residential property, factory etc.
Funding or Borrowing Capital
It’s easy for a private limited company to get funding or borrow capital from angel investors/venture capitalists/banks/ financial Institutes in comparison to other company types.
Liabilities of a Private Limited Company
• A private limited company must hold a board meeting annually
• File annual returns with MCA (Ministry of Corporate Affairs)
• Annual account audit by a CA is mandatory
• Private limited company requires filing the annual return with the Income Tax Department
The Documents Required for Private Limited Company Incorporation
• Identity proof of all Directors (Aadhar card, Driving License, PAN card, Passport)
• Address Proof all directors (Voter ID card, Passport)
• Address proof of company registered office (Rent agreement, Possession letter etc.)
• Electricity Bill of the registered office building
• Bank statement/ passbook of the directors
• Trademark registration Certificate (if any)
Key Highlights of Private Limited Company –
• Limited Liability – The limited liability shields the share holders from personal liability and protects from other risks and losses.
• Attracts more vendors as well as employees
• Procures good investment from reliable investors.
• Increases the potential to grow and expand