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.
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.
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Eligibility Criteria to start a Pvt. Ltd. Company
Basic requirements to start a Pvt. Ltd. Company. are as follows:
- Minimum age of the applicant should be 18 years
- Applicant should be Indian citizen or resident
- Number of members should be between 2-200
- At least 2 directors and 2 shareholders should have their presence
- DIN must be available with each Director
- Applicant should possess Company’s incorporation certificate
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
- Duly filled application form with passport-sized photographs of applicants (directors)
- Photo ID proof, Address proof, PAN card and Aadhaar card of directors
- Business Address Proof
- Business Incorporation Certificate
- Self-declaration of your directorship in other organizations
- Rent agreement of your registered office
- NOC from the owner of the property
- Any other document required by the Registrar of Companies (ROC)
Related Post: Documents Required for MSME registration in India
Benefits of starting a Private Limited Company
- Liability of shareholder is up to the extent of contribution made
- Private Limited Company has a separate legal entity
- Registered with Registrar of Companies to have more trust
- Every stakeholder or director is considered as an employee
- Lesser paperwork and registration formalities as compared to Public Ltd. Comp.
- Flexibility in taking business decisions (short- or long-term)
- Confidential legal and executive information is more secure
- Minimum capital investment required to start a Pvt. Ltd. Company is only Rs. 1 lakh
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.
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Below, we will look at 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.
Comparison between structures of 3 main types of Companies
|Structure Category||Pvt. Ltd. Company (PLC)||Limited Liability Partnership (LLP)||One Person Company (OPC)|
|Min. Members Req.||2||2||1|
|Purpose||For enterprises with high turnover||Businesses with less investment requirement||Business owners with limited liability and 100% control|
|Dividend Distribution Tax||Applicable||Not applicable||Applicable|
FAQs on Pvt Ltd Company
Q. How many people can start a private limited company?
Ans. As low as 2 members can also start a private limited company.
Q. How long does it take to register a private limited company?
Ans.Approximately, it takes around 10-15 working days in getting your business registered as a private limited company.
Q. What is the Cost involved in Private Limited Company Registration?
Ans. The registration cost of a Private Limited Company can range between Rs. 2000 to Rs. 30,000 depending upon the nature, type, size, volume and location of the business.
Q. What are MOA & AOA?
Ans. Memorandum of Association (MOA) and Article of Association (AOA) helps in safeguarding and structuring a business and also helps in establishing a company’s identity. MOA depicts the constitution of a company whereas AOA defines the set of rules and regulations.
Q. What is the government fee applicable for a Pvt. Ltd. Company incorporation?
Ans. Below mentioned are the charges applicable for DIN and other government forms:
RUN Form: Rs.1000
DIN (2 Nos): Rs.1000
AoA: Rs.1000 (up to Rs.10 lakh of authorized capital)
Q. Who is eligible to be a member of a private limited company?
Ans. Any resident national or NRI above the age of 18 can become a member of a private limited company.
Q. How many directors or shareholders are required for a Private Limited Company?
Ans. Minimum 2 directors or shareholders are required for the company formation. Whereas, the maximum number of members can reach up to 200.
Q. Is it necessary to have 2 directors for a private limited company?
Ans. 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.
Q. Do I have to physically present for the incorporation of my private limited company?
Ans. No, you only need to send scanned copies of your documents by mail after which you will be sent the incorporation certificate by courier.
Q. How do I register a private limited company?
Ans. To register a private limited company, you can fill in and submit the application form directly to the Registrar of Firms or you can take help from various online web portals specializing in providing assistance in getting the registration by charging their fees along with registration amount.
Q. Is GST mandatory for Private Limited Company?
Ans. Yes, GST registration is mandatory for a private limited company. If any business does not get registered under GST, it shall be treated as an offence under law and penalties will be levied.
Q. Can we change the Registered Office of the Private Limited Company?
Ans. Yes, but after taking consent from the shareholders and directors and filing form INC-22 and MGT-14 with MCA the registered office can be changed or shifted from one city to another within the same state and ROC.
Q. Can a Sole Proprietorship be converted to Private Limited Company?
Ans. Yes, it is possible by signing an agreement between the Proprietorship and the Private Limited Company for the sale of the business. The agreement can be signed only after the incorporation of a Private Limited Company.