A private limited company is often recognized as a privately-held business entity. It is managed by private stockholders. The notion of liability arrangement in a private company is quite similar to a limited partnership, wherein the shareholder’s liability is equivalent to the number of shares held by them. With new businesses emerging rapidly across the country, there is a need to get familiar with different business forms i.e., limited liability, sole proprietorship, and private limited company. In this article, we will look into a detailed aspect of a Pvt Ltd Company.
What is Pvt Ltd Company?
In general, a Private Limited Company is regarded as a privately-held business entity. Such entities are managed by private stakeholders. The liability arrangement in a Pvt. Ltd. company is not as stringent as LLP or sole proprietorship business model wherein business assets are at risk in case of a fiscal crisis. Indeed, stakeholders in a Pvt. Ltd. company are accountable for the business loss, but there is an exception to that. The shareholders can confront such losses up to the extent of the number of shares held by them. Meaning – member’s accountability for compensating the business loss is only limited to the number of shares held by them. Also, the stakeholders cannot be held accountable for losses beyond the share’s value. The privately-held business entities in India are governed by the Ministry of Corporate Affairs (MCA).
As per Section 2 (68) of the Companies Act, 2013, the Pvt. Ltd. company is defined as
“A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in the case of One Person Company, limits the number of its members to two hundred;
(iii) prohibits any invitation to the public to subscribe for any securities of the company.”
What Are The Traits Of A Pvt. Ltd. Company?
Now that you become familiar with the definition of a private limited company, the next step is to explore the traits of such a company:-
A minimum of two members is required to incorporate a Pvt. Ltd. company. The maximum number of a shareholder that can exist in such a company is 200. Such entities are liable to appoint a minimum of two directors for managing the day to day operation.
Limited liability structure
In a private company, the member’s liability is limited as per the bylaws. Thus, in the financial crisis, the shareholders are accountable for putting their own assets upfront for repayment. However, they are not liable to compensate for the losses with their personal assets.
Separate legal entity
The Pvt. Ltd. company is often regarded as an autonomous legal entity. Since such an entity follows the notion of perpetual succession, its existence would not be compromised even in financial setbacks or bankruptcy. Also, the company remains unaffected by the lives of its members unless its stakeholder decided to dissolve it through resolution.
No Minimum paid-up capital
Previously, the private limited company was under the legal obligation to procure the minimum paid up capital of 1 lakh Rs. But that provision has been amended in the Act, which makes it not mandatory.
Requirements to start a Pvt Ltd Company
The requirements for starting a private limited company are given below:-
Members and directors
To get legally registered, a privately-held business entity should meet the criteria of holding minimum and maximum shareholders. As per the Company Act, 2013, to set up a private limited company in India, a minimum of two stakeholders is required. The maximum limit is capped at 200.
Below are the stipulates outlined by the Company Act for the director
The director of a private company must have a Director Identification number, aka DIN. It has to be obtained via MCA’s portal after the filling up the prescribed form.
At least one director of the Pvt. Ltd. Company should be an Indian national. Moreover, such candidates should have spent not less than 182 days in the country in the previous calendar year.
Name of the company
Choosing a company’s name is a complicated tasks altogether, generally speaking. Privately-held firms in India require looking into the following aspect to serve such a purpose.
- Main Name
- List of tasks and responsibilities to be carried out within the firm.
- Inclusion of ‘Private Limited Company’ at the end.
Pro Tip: No offensive elements
The entities are not liable to opt for business names that already exist in the authority’s database or have some offensive elements. To ease out such complications, we suggest you send 5-6 names to the authority i.e. ROC for the approval.
Registered office address
Once your company gets registered, the next step is to file the permanent address of the registered office with the ROC.
Obtaining important documents
To submit the document electronically, every firm must avail of a DSC for the authentication of the documents. The Pvt. Ltd. Company must also possess the certificates of qualification of every employee currently serving the organization.
Read our article:Steps for Private Limited Company Incorporation In India
Benefits offered by the private limited company
The following are the advantages rendered by the private company.
In a privately-held business entity, stakeholders are not at the risk of losing personal assets due to the scope of limited liability. If the Pvt. Ltd. Company encounters a fiscal crisis, the members are only accountable for selling their assets to compensate for the loss, as per the bylaws.
Unlike a public company, a privately-held business entity can be formed with two stakeholders.
As the company’s shares are under the possession of its founders, investors, and management, the owner can easily transfer and sell their shares to others.
As we cited earlier, the business stays a statutory entity until it shut down by its member via the legal procedure. The Pvt. Ltd. Company continues to operate even after the demise of any of its stakeholders.
Documentation required for Pvt Ltd Company registration
The following are the documents required for private company registration.
- Identification proof: PAN card of the directors as well as their passport
- Address proofs: Aadhar card, ration card, Voter ID, or DL.
- Residence proofs: Utility bill of the business place or bank passbook.
- Rent agreement (notarized)
- No objection certification from the owner of the property.
- Copy of property deed
Instructions for registering Pvt Ltd. Company
After you finalize the company’s name, follow the given instructions.
- Apply for Digital Signature Certificate on the MCA website.
- Apply for the Director Identification Number on the MCA portal.
- Apply for the availability of business names.
- File the e-Moa and e-AOA for the private limited company registration.
- Obtain TAN and PAN of the business entity.
- Submit the Incorporation certificate issued by ROC.
- Approach to the bank to open a current account on the name of the company.
As soon as you are done with the above instructions, you are all set to commence the business operation. Private companies render plenty of legal benefits as well as tax advantages as compared to other business models. If you are looking to register your business entity to a private limited firm without a hassle, connect with CorpBiz’s experts today.
Read our article:Private Limited Company Registration Procedure in India