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PRIVATE LIMITED COMPANY

PRIVATE LIMITED COMPANY

Risk – every business faces it, which is why many people hesitate to start their own business. However, when you choose a Private Limited company as your business structure, it shields your personal assets from losses and restricts your liability.

WHAT IS PRIVATE LIMITED COMPANY ?

A private limited company is run by the private person for the small or medium size business entity. These private limited companies are different from the public limited companies. The private limited company does not offer any shares to the open markets or to the public and also limits the liability of the Shareholders. 

According to section 2(68) of the Companies Act of 2013, it gives the definition for the private limited company as,

“Private company” having the minimum share capital which prescribed and,

(i) Confines the right to transfer the shares;

(ii) With except the one person company, it allows the  memberships or the subscribers up to maximum of two hundred shareholders;

(iii) Bars any solicitation to the general public for the subscription to the company securities.

Basically the private company is owned by one individual who is only responsible for all the assets for the business operation in the company. He can manage all the directors and shareholders of the company and have a separate legal structure from others. The size of the business may be small or medium.

The private limited company should be identified by the suffix “ Pvt Ltd” after the company name. Eg: JK roadway Pvt. Ltd. and Nixcorn Pvt. Ltd.

TYPES OF PRIVATE LIMITED COMPANY :

There are three types of the private limited companies based on the shares, guarantee and the liabilities of the private limited company.

  • Company limited by the shares : In these companies the shareholders are only liable for the share capital which is mentioned in the MOA (Memorandum Of Association). The shareholders are not liable to pay more than the mentioned share capitals to invest in the company. 
  • Company limited by Guarantee : In the private limited company, the guarantee assures only for the invested capital amounts by the shareholders and members. It does not assure guarantees other than the capital amount which is mentioned in the MOA. 
  • Unlimited liability companies : The unlimited companies having the liabilities for the company’s debt and the company’s personal liabilities. It is still considered as a separate legal entity. In this unlimited liability company the shareholders are not responsible for the other behaviours and not sue them individually.

These are the three types of companies of the private limited company.

ADVANTAGES OF THE PRIVATE LIMITED COMPANY :

The private limited company has various benefits and advantages. Those are,

  • Limited liabilities : The main advantages of incorporating the private limited company in India are having the limited liability of the company protects the risk of personal assets of the company directors, during the loss and financial obligation of the company.
  • Separate legal identity : The private limited company has a separate legal identity which is different from their directors and the shareholders. The company is responsible for all the assets and liabilities to the creditors and debtors. Hence the shareholders are not responsible for the losses of the company. The creditor should not sue against the shareholders to recover or claim the damages.
  • Trust and Credibility : The suffix “Pvt. Ltd” of the company brings more trust and confidence among their customers and partners. Since private limited companies are registered with ROC (Registrar Of Company), After the approval from the Ministry of corporate affairs (MCA). 
  • Continuous existences : The private limited companies have the perpetual succession which means, it has the life long existence until the company is legally dissolved by their directors, members.
  • Tax Benefits : Many Private limited companies are subjected to special schemes such as tax benefits and tax exemptions. The Corporation tax is calculated on the base of 25% of the profits earned by the corporate company, but the private limited company is taxed only for the profits after many deductions made in the name of expenses of the company.
  • Capitals and Fundings : Private limited companies raise their capitals by issuing the shares to the investors and the shareholders. This will also attract foreign direct investment and funds from the different institutions. 

ELIGIBILITY FOR THE PRIVATE LIMITED COMPANY :

As per the guidelines of the Companies Act of 2013, the private limited company essentially fulfils the certain eligibility criterias for the company incorporation in India.

  • The private limited company should have the minimum requirement of 2 and the maximum of 15 directors for the company. At least one of them should be a resident of India. 
  • The limit of the shareholders should be a minimum of 2 and the maximum of the 200 shareholders for the private limited company.
  • The private limited company must have the minimum share capital of one lakh rupees. 
  • The company should be in the commercial space. If it resigns in the rental space, the NOC (No Objection Certificate) is necessary.
  • The name of the private limited company should be distinct from the already existing company.

ESSENTIAL DOCUMENTS FOR THE PRIVATE LIMITED COMPANY FOR THE INCORPORATION :

For the private limited company the certain essential documents are required for the company incorporation in India.

For Shareholders and Directors

  • Aadhar Card
  • PAN Card
  • Photo
  • Recent Bank Statement

Proof of Business Address

  • Rental Agreement
  • Latest EB Receipt.

These are the required essential documents for the incorporation of the private limited company in India.

THE PROCESS OF REGISTRATION OF PRIVATE LIMITED COMPANY IN INDIA :

Step 1 : Reserve company name :

The First Step is to reserve the selected name for the company in the MCA portal. It recommends the applicant should use or choose the free names in the MCA portal for their company. In This portal it shows the list of names which helps to avoid the similar existing names to the company. The selected name should not be used by an already existing company and the suffix “Pvt Ltd” should be added to that name. 

Step 2 : Apply for Digital Signature Certificate (DSC) :

For the registration of the private limited company it is a completely online process which requires the digital signatures necessary for further authentication of the process.

First we need to apply for the Digital Signature Certificate (DSC) of all the directors in the company. A Digital Signature Certificate is the electronic signature of the directors, which helps to easily authenticate the online process of Authentications and other signatures. The DSC is mandatory for all the directors and members of the company. It should be obtained from the official governmental certifying authorities such as the Ministry Of Corporate Affairs (MCA). Once we applied the digital signature within two days we can obtain the digital signatures for all the directors and members in the MCA after approval.

Step 3 : Apply for Directors Identification Number (DIN)

The Directors Identification Number (DIN) is an unique identification number for the directors of the company. For the DIN we need to provide all the necessary information and proofs along with the name of the directors. It should be submitted for the approval of DIN. The DIN is essentially required for the registration of the company. The DIN is obtained for a maximum of the three directors of the company. If the company has more directors and has no DIN means the company can incorporate with the three directors. After the incorporation the further DIN should be filed by using the DIR 3 form which mentions the directors of the existing company. 

Step 4 : Filing of the SPICe+ form for incorporation

The company should apply for reserving the names by submitting two proposed names in the Part A of SPICe+ form. If the names are not approved from the authoritative body, they shall reject the form. And the applicant must refile the new name for approval. Once the name gets approved within 20 days the company should file another form.

Part B of SPICe+ form which contains certain details of the company, those are :

  • The allotment of the DIN.
  • PAN and TAN applications are mandatory.
  • EPFO (Employee stock Option Plan) registration applications.
  • Application for bank opening in the name of the company.
  • GSTN allotment application for the company.
  • Electronically generated MOA & AOA for the company.

All these applications should be digitally signed by the directors and should be submitted to the SPICe+ form in the MCA online portal.

Step 5 : Verification and Certification :

The Submitted SPICe+ forms should be verified by the registrar of the companies (ROC) of the Ministry Of Corporate Affairs. The examination of the application is processed by the examiner of ROC. 

Once all the verification is done by the ROC. The certificate of Incorporation should be issued with the unique Company Identification Number (CIN) for the company and allotted PAN (Personal Account Number) and TAN (Tax deduction Account Number) for the private limited company. 

COMPLIANCES OF THE PRIVATE LIMITED COMPANY :

  • Once the company gets incorporated in India, It should follow the certain compliances every year by the company that is required to appoint the auditor within 30 days of the incorporation of the company in the first meeting. Every company should conduct the minimum of 4 board meetings every year.
  • The auditor must maintain all the profit, losses, and the annual reports in every financial year before the due date. The company must maintain the  records with the statutory of registrars of the company.
  • The company must file the income tax for every financial year and the tax return of GST which is digitally signed by one of the directors of the company.

If the company fails to file the annual compliances on the due date, they are liable to pay the fine for the delay of the annual compliances under the Companies Act of 2013.

Differences between the Private Limited Company and a Public Limited Company :

  • Both a private limited company and a public limited company require a distinct name but the name of a private limited company ends with the suffix “Pvt Ltd”. Eg : Hindustan Pvt Ltd. But the public limited company ends with the suffix “Ltd”. Eg : Indian Oil Corporation Ltd.
  • A minimum capital of one lakh rupees is required to incorporate the private limited company in India. Whereas the minimum capital of five lakhs rupees is required to incorporate the public limited company in India.
  • A private limited company is privately owned by the group of shareholders and the directors of the company and having a separate legal entity. But the public limited company is not a separate legal entity.
  • The shares are limitedly available in the private limited company. The maximum of 200 shares are mentioned under the companies act of 2013. But in the public limited company there is no maximum share limit mentioned.

These are the common differences between the private limited company and the public limited company.

FAQ

FAQ ON PRIVATE LIMITED COMPANY :

1. WHAT IS PRIVATE LIMITED COMPANY ?

A private limited company is run by the private person for the small or medium size business entity. These private limited companies are different from the public limited companies. The private limited company does not offer any shares to the open markets or to the public. 

2. WHAT ARE THE TYPES OF PRIVATE LIMITED COMPANY ?

There are three types of the private limited companies based on the shares, guarantee and the liabilities of the private limited company.

    • Company limited by the shares.  
    • Company limited by Guarantee.
    • Unlimited liability companies.
3. WHAT ARE THE PROCESS OF REGISTRATION OF THE PRIVATE LIMITED COMPANY ?

Step 1 : Apply for  Digital Signature Certificate (DSC) 

Step 2 : Apply for Directors Identification Number (DIN) 

Step 3 : Reserve company name 

Step 4 : Filing of the SPICe+ form for incorporation 

Step 5 : Verification and Certification

PRIVATE LIMITED COMPANY
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