Why your startup must be a Private Limited Company
What is a private limited company?
A Private Limited Company is a business entity held by a small group of people. It is registered for pre-defined objects and owned by a group of members called shareholders. Startups and businesses with high growth aspirations are popularly choosing Private Companies as a suitable business structure.
A business entity gets recognised as a Company through its registration under the Companies Act of 2013 in India. The governing body is the Ministry of Corporate Affairs, widely known as MCA. The definition of a Private Company under the Act is provided here to understand its basics. Section 2 (68) of the Act defines a Private Company as under,
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 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
Types of Private Limited Company
Company limited by Shares:
The liability of this type of Private Limited Company is limited to the shareholders. If the company incurs any loss or is sued, the shareholder’s assets will not be affected or bankrupted. The shareholders need not compensate for any losses.
Company limited by Guarantee:
The liability is limited to the shareholders by the guarantee mentioned in the Memorandum Of Association and Article Of Association.
The liability is unlimited to the shareholders, which means they have to compensate for the loss at any cost.
Benefits of Private Limited company
Investors invest their money for their growth and passive income, therefore, they expect a well-reputed company and innovative ideas that generate revenue. The name private limited provides that reputation and credibility to your company.
- Separate legal entity
It is considered as a legal person with numerous rights. Therefore, the directors and shareholders are treated as an agent. The retirement or death of the director or shareholder never affects the entity.
- Eligibility for startup India
The government allocated a thousand crore for the Startup India Scheme. The Startup India Scheme possesses lots of benefits such as you can get an 80% subsidy on the registration of intellectual property or patent registration and also availing a tax exemption for three years. Only Private Limited and Limited Liability Partnership can register under the Startup India scheme and get all those benefits.
- Continuous existence
Legally a Private Limited Company is considered a “Perpetual Succession” which means it can never be dissolved if a director or shareholder dies or retires. Because we have already seen that it is a separate legal entity.
- Can easily sell your company and exit
The shareholders can sell the private limited company to third parties, either in part or in whole by passing a Board of Resolutions with general acceptance.
Requires to form a private limited company
A private limited company is a separate legal artificial person, which requires minimum of two shareholders, two directors, and one lakh of share capital, office location in India. The transferability of shares to the general public is not allowed.
- PAN Card of the directors
- Aadhar Card
- Statement of the Bank account
- Photo of the directors
- Rental deed
- No Objection Certificate from the landlord
- Utility bills
How to register a Private Limited Company?
Name approval is the basic thing you need to acquire. Two entities cannot have similar or identical names. Name approval for entities is approved by the Ministry of Corporate Affairs (MCA). In order to obtain approval, you need to submit the documents and the form with the entity name on the MCA portal.
However, the main thing is that the name should contain three parts. They are, the first name should be unique, the second name describes your business entity and the last name should be “Private Limited”. More than one name can be sent per entity to increase the possibility of entity name approval.
Obtain Digital Signature Certificate:
A digital signature certificate is a unique electronic certificate which is shortly known as a DSC. Obtaining a DSC is essential as registering a private limited company is an online process which prevents forgery of your signature for illegal activities.
Obtain Director Identification Number:
The Director Identification Number, known simply as DIN, contains an eight-digit number that should be obtained by the person, who intends to become a director. It serves as proof of identity for the director and helps to keep track of them.
Obtain PAN Card and TAN for the firm:
Permanent account number is the expended form of PAN which contains a ten-digit alphanumeric number. The full form of the TAN is the Tax collection Account Number and contains a ten-digit unique number. Both PAN and TAN are governed and issued by the Income Tax Department of India. By filling out the online form you can easily obtain PAN Card and TAN.
Submit Memorandum Of Association and Article Of Association:
The Memorandum of Association is the full form of the MOA and the Articles of Association is the full form of the AOA. The MOA clarifies the constitution, authorities and purposes of the company.
The AOA explains the company’s rules and regulations, responsibilities, salaries, holidays, overtime payments, the health of employees, etc.