What is Private Limited Company?
Private limited company is typically a small business establishment or entity that is owned privately. Since these private companies are owned by a stipulated number of investors are known to be ‘Limited Companies’. While private companies may be large or small, they are generally small businesses that are often owned by a closed group consisting of family, friends or angel investors. Some of the biggest private limited companies include Facebook, Reliance, Infosys, TCS, Wipro and many more.
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In India, large numbers of companies are registered as private limited companies and are defined by the Companies Act, 2013 under the Ministry of Corporate Affairs and the Companies Incorporation Rules, 2014. The private limited company registration process is a popular administrative procedure, since it offers a variety of benefits for startups and young businesses in the form of easy fund-raising and limited liabilities for shareholders.
Steps to register as a Private Limited Company
A private limited company registration process entails a few simple steps for which applicant need only the most basic documents. Below are five easy steps towards setting up private limited company:
Step 1: DSN and DPIN Application: Applicant needs to apply for a Digital Signature Certificate (DSC) and Director’s Pin (DPIN), where the DSC is essentially an online signature that can be used for form filling. DPIN is issued by the Ministry of Corporate Affairs (MCA).
Step 2: Approval of Name: To set up a private limited, applicant will need to provide at least 3 optional names that are clearly descriptive about the company’s business.
Step 3: MOA and AOA: One of the important steps towards creating one’s company is the drafting of a Memorandum of Association (MOA) and Articles of Associate (AOA).
Step 4: Incorporation Certificate: Private limited company is officially set up for business in a span of about a month where the incorporation certificate confirms it and also includes the crucial Corporate Identity Number (CIN) number.
Step 5: Applying for the PAN and bank account: After receiving the incorporation certificate, applicant will get his/her PAN and TAN card within a week, after which he/she can submit PAN, AOA and MOA to the bank to open bank account.
Additionally, there is another online feature initiated by Ministry of Corporate Affairs known as Simplified Proforma for Incorporating Company electronically (SPICe). SPICe is a fast track registration process that enables a one form application process of company registration. With its quick process the online registration can be done within 7 days as compared to a month in the normal process.
Documents Required for Company Registration
- PAN card
- Aadhaar card
- Specimen signature
- Passport-sized photos of directors
- Address proof of directors
- Photo ID proof of directors
- Self-declaration of your directorship in other organisations
- Rent agreement of your registered office
- NOC from the owner of the property
Related Post: Documents Required for MSME registration in India
Why are Private Limited Companies Unique?
Since private limited companies offer a variety of features such as limited liability protection for investors and shareholders, the ability to raise funds for equity and the fact that foreign nationals and corporate entities can become directors and/or shareholders of private limited companies in India with foreign direct investment, they are one of the most popular types of business entities in India and elsewhere. According to the Companies Act of 2013, a minimum of two members are needed to set up a private limited company and can have a maximum of 200 shareholders.
Below, we will look at the some of the main features of private limited companies.
Features of Pvt. Ltd. Company
- A private limited company needs a minimum of 2 members and can have a maximum of 200 members according to the Companies Act of 2013, where each of the 2 members can assume the roles of director and shareholder.
- One of the defining features of a private limited company is that the liabilities of its members are limited i.e. in case of losses or downturns, while shareholders may need to sell their assets for payment, their individual assets are not at risk.
- Any private limited company exists for perpetuity, even in extraordinary circumstance, such as the death of its members or insolvency.
- Unlike public limited companies, private limited companies do not need to maintain an index of their members.
- A private limited company needs only two directors to begin operations.
- While private limited companies customarily needed to have a paid-up capital or subscription amount of at least Rs. 1 lakh, since 2015 there is no such requirement.
- For setting up a private limited company, there are a variety of business loans that one can avail on submission of basic KYC documents, such as business, address and identity proofs.
- With the exception of an IPO event, private limited companies are not required to issue a prospectus or statement of the affairs of the company to the public.
- Any private limited company needs to recover at least 90% of its shares if they wish to commence their business operations further.
- Lastly and importantly, every Private Limited Company needs to have the phrase “private limited” after its name.
Benefits of registering as Pvt. Ltd. Company
Both public and private limited companies are categorized together on the basis of the nature of partnership and stakeholdership entailed in limited liability companies. However, there are crucial differences between public and private limited companies.
Below, we will see the kinds of benefits offered by private limited companies, as compared with public limited company:
- Unlike public limited companies, private limited companies need not be sold to the general public in the market. They could be sold by the owners and directors of the company to a lesser number of chosen shareholders at any point of time.
- For establishing a public limited company entrepreneur needs at least 7 shareholders and only 2 shareholders in case of private limited company.
- In contrast to public limited companies, setting up private limited companies entails little paperwork and formalities.
- Unlike public limited companies that necessarily need to disclose information and financial reports to the general public every financial quarter, private limited companies have no such obligations.
- Owing to the limited and relatively lesser number of shareholders in private limited companies, management and decision-making processes are much easier in contrast to public limited companies.
- Private companies tend to be more flexible with business decisions across short and long time-frames.
- In contrast to public companies where shareholders have the right to exert pressure on the company to generate revenue, private limited companies do not have to concern themselves with the expectations of shareholders as long as they are working within the law.
- Unlike public limited companies that are compelled to boost their earnings in the short-term, private limited companies have the liberty to focus on long-term goals.
- Public companies continue to require at least Rs.5 lakh as share capital. Unlike earlier, private companies are not obligated to pay up a subscription of Rs.1 lakh as private company registration fees.
- Lastly, in the case of private limited companies, a variety of confidential legal and executive information is secure since unlike public companies, this information does not necessarily need to be disclosed.
FAQs on Pvt Ltd Company
Q1. How many people can start a private limited company?
As low as 2 members can also start a private limited company.
Q2. How much money is required in opening a private limited company?
The minimum amount required to start a private limited company is Rs. 1 lakh.
Q3. What is the government fee applicable for a Pvt. Ltd. Company incorporation?
Below mentioned are the charges applicable for DIN and other government forms:
RUN Form: Rs.1000
DIN (2 Nos): Rs.1000
MoA: Rs.1000
AoA: Rs.1000 (up to Rs.10 lakh of authorized capital)
Q4. Who is eligible to be a member of a private limited company?
Any resident national or NRI above the age of 18 can become a member of a private limited company.
Q5. Is it necessary to have 2 directors for a private limited company?
Yes, it is necessary to have at least 2 directors to set up a private limited company.
However, if you can also register as a One Person Company in case you are the sole owner.
Q6. Do I have to physically present for the incorporation of my private limited company?
No, you only need to send scanned copies of your documents by mail after which you will
be sent the incorporation certificate by courier.