Aprivate limited companyis a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them.Shares of Private Limited Company cannot be publically traded. Alll the aspects of Private Limited Company is discussed in the article.
Characteristics of Private Limited Company
- Members– To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the Companies Act, 2013.
- Limited Liability– The liability of each member or shareholder is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
- Perpetual succession– The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to the perpetual succession of the company. The life of the company keeps on existing forever.
- Index of members– A private company has a privilege over the public company as it don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
- A number of directors– When it comes to directors a private company needs to have only two directors. With the existence of 2 directors, a private company can come into operations.
- Paid-up capital– It must have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
- Prospectus– Prospectus is a detailed statement of the company affairs that is issued by a company for its public. However, in the case ofaprivate limited company, there is no such need to issue a prospectus because this public is not invited to subscribe for the shares of the company.
- Minimum subscription– It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
- Name– It is mandatory for all private companies to use the word private limited after its name.
Procedure to register Private Limited Company
Once a name for the company is decided, the following steps have to be taken by the applicant:
Step 1: Apply for DSC (Digital Signature Certificate) and DIN (Director Identification Number)
Step 2: Apply for the name availability
Step 3: File the MOA and AOA to register the private limited company
Step 4: Apply for the PAN and TAN of the company
Step 5: Certificate of incorporation will be issued by RoC with PAN and TAN
Step 6: Open a current bank account on the company name
Requirements for Private Limited Company Registration
The requirements forprivate limited company registrationare:
Members- A minimum number of two and a maximum number of 200 members or shareholders are required as per the companies’ act 2013 before registration of the company.
Directors- A minimum number of two directors is required for registering the private limited company. Each of the directors should have DIN i.e. director identification number which is given by the ministry of corporate affairs. One of the directors must be a resident of India which means he/she should have stayed in India for not less than 182 days in a previous calendar year.
Name- It is one of the major components of a private limited company. The name of the company contains three parts i.e. the name, the activity, and private limited company. It is necessary for all private companies to use the word private limited company at the end of its company name. Every company has to send 5-6 names for approval to the registrar of the company and all the names should be unique and expressive. The name for approval should not resemble with any other companies name. So choosing the right company name is an important component is it will stay with the company throughout its life.
Registered office address- While going for the registration of the company, the owner should provide the temporary address of the company until it does not get register. However when the company has been registered then the permanent address of its registered office should be suited with the registrar of the company. The Registered office of the company is where the company’s main affairs are been conducted and where all the documents are placed.
Obtaining a digital signature certificate- In today’s modern world everything is done online. All documents are submitted electronically and for that, every company must obtain a digital signature certificate which is used to verify the authenticity of the documents. A digital signature is obtained by all the directors which are marked on all the documents by every director.
Professional certification- In a company there are many professionals which have required for many purposes. For incorporating a private limited company certification by these professionals are necessary. Various professionals such as company secretary, chartered accountants, cost accountants, etc are required to make their certification at the time of company incorporation.
Advantages of Private Limited Companies
In a public company, regulation and ownership of shares can be sold to the public on an open market. On the other hand, in a private company, shares can be sold or transferred to other people by the choice of the owner. Shares of such companies are owned by founders, management, or a group of private investors. Shares here are not sold in the open market. Thus there will be less number of shareholders. This means less complexity and confusion in decision-making and management.
- MINIMUM NUMBER OF SHAREHOLDERS
For a private company, a minimum number of required shareholders is 2, whereas, for a public company, you require a minimum of 7 shareholders.
- LEGAL FORMALITIES
Legal formalities are sometimes very expensive and time-consuming, aren’t they? If you’re planning to start a public company, you better be prepared because there is a long list of legal formalities for forming a public company. Private companies have a comparatively shorter list.
- DISCLOSING INFORMATION
A public company is required to disclose their financial reports to the public every quarter, as it will affect public investment; private companies are not subjected to any such compulsion.
- MANAGEMENT AND DECISION MAKING
Management and decision-making become more complex and confusing in public companies as more number of shareholders is to be consulted. This complex procedure is eliminated in a private company as the number of shareholders is less.
- FOCUS OF MANAGEMENT
Managers of Public companies are focused on increasing the value of shares, whereas managers of the private company are more flexible in the short term and long term business decisions.
- STOCK MARKET PRESSURE
Private companies are not pressurized by the stock market and you don’t have to worry about shareholder expectations and interference as long as they work within the law. Shareholders in public companies are focused on current earnings and they exert pressure on the company to increase earnings.
- LONG TERM PLANNING
Managers of public companies are pressurized to increase earnings in the short term in order to increase the value of their stock. Private companies can focus on long-term earnings as such pressure is eliminated.
- MINIMUM SHARE CAPITAL
You will be needing a lot of money for a public company. A public company requires a minimum share capital of Rs. 5,00,000. For a private company, the earlier minimum number of the share capital was Rs. 1,00,000, but now there is no such minimum compulsion. Therefore there is no pressure of fund requirements.
It is obviously not appropriate, for competitors to know about your business secrets. Confidential information such as executive compensation, legal settlements, and other essential information cannot be kept reserved in public companies. Such information is more secure in a private company.
- Share capital amount and proposed ratio for holding shares.
- A short description of the company and the business.
- Name of the city where the registered office of the company is located.
- Ownership and sale deed (In case your own premise).
- Identity proof of the Directors and Shareholders (PAN Card).
- Address proof of the registered office (Electricity bill, telephone bill, etc.)
- Address proof of the Director or the Shareholder (Voter ID, Passport, Driving license, etc.)
- A duplicate copy of the latest electricity bill, telephone bill, or mobile bill for directors.
- Occupation details of directors as well as shareholders.
- Email address of the directors and shareholders.
- Contact details of directors and shareholders.
- Passport size photo of directors and shareholders.
- In case the property is on rent then you need to submit a copy of the rent agreement with No Objection Certificate (NOC) from the landlord.
- Affidavits for non- acceptance.
- NOC for a change in the original subscribers of MOA.
- MoA and the AoA subscriber sheets.
- PAN Card of the company.
- In case you are a foreign national subscriber then you need to provide Nationality proof.
Therefore, a Private Limited Company is less complicated compared to a Public company. It is comparatively less expensive and less time-consuming.
For any further query about the company registrationof Private Limited Company, feel free to contact us at LegalRaasta.
What is private limited company in simple words? ›
A private limited company is a type of organisation you can set up to run your business. Company ownership is split into shares owned by shareholders. A company must pay corporation tax out of any profits and can then distribute the remaining profits among shareholders.What are 3 disadvantages of a private limited company? ›
- You must be incorporated with Companies House. ...
- Complicated accounts. ...
- Shared ownership. ...
- Your company must be in compliance with strict administrative requirements. ...
- Limited stock exchange access.
The most significant advantage of a private limited company is that the owners have limited liability. This means that the shareholders' assets are protected if the company goes into liquidation. If the company goes bankrupt, the owners are only liable for the amount they have invested in the company.What are the characteristics of a private limited company? ›
Definition of a Private Limited Company
- Restricts the right to transfer shares.
- Excluding One Person Company (OPC) limits the number of its members to 200.
- Restricts any invitation to the public to subscribe to any company securities.
Who runs limited companies? Directors – known as company officers – manage limited companies and they can be shareholders as well. A private limited company must have at least one director and most company owners are directors – meaning you can own and manage a limited company yourself or with others.What are the rules for private limited company? ›
To start your Private limited company at least two people is required and you may exceed to a maximum of 200 people. If your company faces any loss , you are liable to sell assets of company for payment. Your personal or any individual resources or funds are not at risk. A private limited company exists forever.What are the risks of being a private limited company? ›
One of the main disadvantages of a Private Limited Company is that it restricts the transferability of shares by its articles. In a Private Limited Company the number of shareholders, in any case, cannot exceed 50. Another disadvantage of a Private Limited Company is that it cannot issue prospectus to the public.What are the risks of a private limited company? ›
- prosecutions of directors by Companies House;
- director disqualification;
- personal liability for breaches of a directors fiduciary duties;
- personal liability of directors in insolvency proceedings.
Liability risks, lawsuits and fines, cyber theft and commercial crime are real threats facing private companies; however, when such a loss occurs, many private organizations overlook the hidden costs associated with those losses.”How much tax does a private limited company pay? ›
Taxation Rate: Private Limited Company
If a Private Limited company makes under ₹400 crores in the previous year, a 25% tax is levied. If their turnover is over ₹400 crores, 30% tax is levied.
What tax do private limited companies pay? ›
The one tax that limited companies have to pay but others do not, is Corporation Tax. Unlike sole traders, limited companies don't pay income tax or direct national insurance (see 'Employers' National Insurance Contributions', below).What is the most important feature of a private company? ›
Limited Liability– The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.What happens to the profits in a private limited company? ›
There are three main routes for a business owner to extract profits from their own Ltd company: salary, dividends and pension contributions (although this is taking money from the company for future use). The other alternative is to leave the profit in your company and take the proceeds from the subsequent sale.What are the main objectives of a private limited company? ›
The main aims of a private limited company will be to increase income and maximise its profit in order for the shareholders to receive a good return on their investment.Who owns the assets in a private company? ›
The owners of a private company are the shareholders. The managers of a private company may or may not be shareholders. Under the current Companies Act, private companies are no longer limited to 50 members.Who is liable in a private company? ›
A limited liability company is an independent legal entity. Therefore, if someone sues the company, they are suing the entity and not its directors or shareholders. However, there are some circumstances in which a director is personally responsible for its company debts and liabilities.Why is it called private limited company? ›
A private limited company, or LTD, is a type of privately held small business entity. This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares.What a private company Cannot do? ›
Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies. “Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.Can one person run a private limited company? ›
Yes, the private company will also file form INC-6 for converting itself into an OPC. The paid up share capital of private company should not be exceeding fifty lakh rupees and should not have average annual turnover more than two crore rupees at the time of such conversion into OPC.What is the capital required to start a private limited company? ›
Paid-up Capital of a Company
Paid-up capital will always be less than authorised capital as a company cannot issue shares above it authorised capital. The Companies Act, 2013 earlier mandated that all Private Limited Companies have a minimum paid-up capital of Rs. 1 lakh.
What happens if a private limited company fails? ›
When a company is liquidated, a licensed insolvency practitioner (IP) takes control of the company, realises its assets, and distributes the funds to creditors. Because the company is a separate legal entity from its directors, you are protected from personal liability unless certain circumstances arise.What are the main four disadvantages of a private limited company? ›
- Registration Process. Private limited company registration on average takes about 10 – 15 days and costs Rs. ...
- Compliance Formalities. ...
- Division of Ownership. ...
- Personal Liability. ...
- Winding Up of Company. ...
- Advantages of Private Limited Company.
Private limited company is a company that is limited by shares or by guarantee by its members. A private company is defined as a company that has a minimum paid up share capital of Rs 1,00,000.What is a limited company for Dummies? ›
What is a Limited Company? A limited company is a legal entity, which is not held by a single owner, but by a shareholder or multiple shareholders. Also known as the Limited Liability Company, limited companies allow the founder/s to disassociate their own assets and finances from the business itself.What is private company and its examples? ›
A private company is one that doesn't issue publicly traded shares and isn't subject to the Securities and Exchange (SEC) reporting requirements for public companies. Private companies are often individually or family-owned, but they may also be owned by private investors and shareholders.What is a private company example? ›
Many well-known companies are private companies. Some of the most popular private companies examples include service companies such as Deloitte and PriceWaterhouseCoopers, supermarket chains like Publix, and chemical companies like Cargill (the largest private company).How is a private limited company formed? ›
Particulars of the Director's, Manager or Secretary - Form-32. After processing of the Form is complete and Corporate Identity is generated obtain Certificate of Incorporation from RoC. File a declaration in eForm 19 and attach the prospectus (Schedule II) to it. Obtain the Certificate of Commencement of Business.How do you manage a private limited company? ›
- #1: Apply for DSC (Digital Signature Certificate)
- #2: Apply for the DIN (Director Identification Number)
- #3: Apply for the name availability.
- #4: File the EMoa and EAOA to register the private limited company.
- #5: Apply for the PAN and TAN of the company.
In the private sector, a business's primary objective is to make a profit. In the public sector, the primary objective is to provide goods and services that benefit the public. Part of public sector funding comes from taxes.