Private Limited Company

What is a Private Limited Company?

A private limited company is a privately held business entity held by private stakeholders. The liability arrangement, in this case, is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them. With the startup ecosystem booming across the country and more and more people looking to do something on their own, there is a need to be well-acquainted with different business registration types i.esole proprietorship, limited liability company, and private limited company. In legal terms, Section 2 (68) of the Companies Act, 2013 defines a private company as: “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.”

List of Documents Required for Private limited company

The documents required for a private limited company are:

1. Aadhar and PAN Card of the Directors
2. Latest passport-sized photos of all the proposed Directors
3. Identity proof of the Directors
4. Address proof of the Directors.
5. Proof of registered office of the Company. The following documents must be submitted as address proof of the Company
6. Rental Agreement or Tenancy Agreement between the landlord and Company;
7. Letter/NOC from the Landlord of their permission to use the premise or office as the company’s registered office;
8. MoA&AoA of the Company.
9. Email & Phone numbers of Directors

How to register a Private Limited Company?

After you finalize a name for the company, follow the below-mentioned steps:

1. Apply for DSC (Digital Signature Certificate)
2. Apply for the DIN (Director Identification Number)
3. Filing Incorporation Form (SPICe+ Form)
4. Apply for the name availability
5. File the EMoA and EAoA to register the private limited company
6. Apply for the PAN and TAN of the company
7. Certificate of incorporation will be issued by RoC with PAN and TAN
8. Open a current bank account on the company name

What are the different types of Business Structures in India?

Let’s discuss the different types of business structures in India, following is the list of same:

1. Private Limited Company: This Company is the most prevalent & popular type of corporate legal entity in India. Private Limited Company is a privately held business entity and Company is privately held by the shareholders & the maximum number of shareholders shouldn’t be more than 200. Similarly, the liability arrangement in a Private Company is that of a Limited Partnership, wherein the shareholder’s liability extends only up to the number of shares held by them. Usually, a Private Company in India doesn’t offer or trade its shares to the general public on the stock exchanges, but rather the private stock of the Company is traded or owned.

2. Public Limited Company: This Company is a group of members which is incorporated under the Companies Act and it has a separate legal existence & the liability of its members are limited to the share they hold.

3. OPC or One Person Company: A One Person Company is a company established by only one person. A single person established & managed the Company. A One Person Company has all the features of a Company like limited liability, perpetual succession & a separate legal entity.

4. LLP or Limited Liability Partnership: Limited Liability Partnership is an alternative corporate business that gives the benefits of limited liability of a Company & the flexibility of a Partnership. It is liable to the full extent of its assets but liability of the partners is limited to their agreed contribution in the Limited Liability Partnership.

5. Sole Proprietorship: This is a business that is completely owned & controlled by a single person, a Company or a Limited Liability Partnership. There are no partners in the business. Sole Proprietorship is not a separate legal entity from the business owner. The business owner has unlimited liability that means the owner is personally liable for all the debts & losses of the Sole Proprietorship.

In this article, we will talk about different sides of a private limited company.

Private companies have the upper hand over public companies with respect to investment in long-term strategies, keeping the values of their shares and financial figures discreet, freedom, and flexibility of operations.

Types of Private Limited Company

1. Company Limited by Shares: In these companies, the members’ liability is limited to the nominal share amount as mentioned in the Memorandum of Association. The shareholder cannot be held liable or asked to pay more than his/her share capital invested in the company.

2. Company Limited by Guarantee: In a private limited company limited by guarantee, the members’ liability is limited to the amount of liability each member undertakes in the Memorandum of Association. Consequently, members of a Private Limited Company Limited by Guarantee can not be held accountable for a sum greater than the amount of guarantee performed by the member in the Association Memorandum.

Furthermore, the shareholder’s guarantee in a company Limited by Guarantee can be sought only in the case of the company winding-up. The guarantee of the members of a Company Limited by Guarantee can not be withdrawn when the company is a going concern.

3. Unlimited Companies : Unlimited corporations are those types of businesses that have no restrictions on their members’ liability. Each member’s liability extends over the entire amount of the company’s debts and liabilities. Hence, an unlimited company’s creditors have the right, if wound up, to impose the company’s debt and liabilities on shareholders.

 

Despite not giving limited liability protection to the shareholders, an unlimited company is still regarded as a separate legal entity. The members of an unlimited firm can not, therefore, be sued individually.

Advantages of Private Limited Companies

1. Separate legal entity: This is a separate legal entity and continues in perpetual succession. This means that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution

2. Limited liability: In a private limited company, there is a limited liability, which means the members of the company are not at the risk of losing their private assets. If a company fails, the shareholders are liable to sell their assets for payment

3. Less number of shareholders: Unlike a public company that requires seven shareholders, a private limited company can be started with just two shareholders

4. Ownership: As the company’s shares are owned by investors, founders, and management, the owners are at the liberty of transferring and selling their shares to others

5. Ease in Raising Funds: Being a highly compliant structure, banks prefer to issue loans easily to Companies. Private Limited Company offers key benefits like the ease in limited liability protection for owners & ownership transfer.

6. Uninterrupted existence: As mentioned earlier, the company stays a legal entity until it is legally shut down, the company runs even after the death or departure of any member. One of the main benefits of Private Limited Company Registration is the share can be easily transferred to the other person without any complications & hassle.

7. ESOP (Employee Stock Option Plans): Private Company can issue Employee Stock Option Plans to its employees subject to the limitation of the number of shareholders. Section 61 of the Companies Act enables a Private Company to issue Employee Stock Option Plans to its employees.

 

Disadvantages of Private Limited Companies

1. One of the disadvantages it gets with Pvt ltd company is the compliance formalities for shutting it down. It often ends up getting too complicated and time-consuming.

Requirements to start a Private Limited Company

Every business type has its own set of requirements before it is incorporated. The requirements for registering this are as stated below:

1. Members and directors

As mentioned above, to get itself legally registered, a private limited company must show a minimum number of two and a maximum number of 200 members. This is a statutory requirement as mandated by the Companies Act 2013.

The directors should meet the following conditions:

• Each of the directors should have a 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 the previous calendar year

2. Name of the company

Choosing the name of the company is often a technical task. A private limited company is required to cover three aspects while deciding a name for itself:

1. Main name
2. Activity to be carried out
3. Mention of ‘Private Limited Company’ at the end.

3. Registered office address

After the company has been registered, the permanent address of its registered office must be filed with the registrar of the company. The registered office of the company is where the company’s main affairs are being conducted and where all the documents are placed.

4. Obtaining other documents

For electronic submission of documents, every company must obtain a digital signature certificate that is used to verify the authenticity of the documents. Moreover, in a company employing professionals (secretary, chartered accountant, cost accountant, etc.) for varied activities, certifications by these professionals is necessary.

Compliances under Companies Act

In India, a Company which has been registered under Companies Act, 2013 must ensure compliance with the Companies Act, 2013. In India, the Companies Act, 2013 regulates:

• Qualification, appointment, remuneration & retirement of Company’s Directors.
• How to conduct Board & Shareholders Meeting.
• The presentation & preparation of annual accounts and the regular maintenance of books of accounts.

 

Following are some vital post incorporation compliances:

• Once you get the Certificate of Incorporation, a separate legal entity for the Company is established
• Once you get the Certificate, within 30 days one of the Company’s Directors must issue the notice for the 1st Board Meeting of the Company and at least 7 days prior to the latter being scheduled for.
• In the 1st Board Meeting, the Company must appoint its 1st Auditor within 30 day(ADT-1)s of Incorporation by its BoDs or Board of Directors and every Company’s Director shall disclose their concern or interest of other Companies in the Form MBP-1. Moreover, in case of any change in Director’s interest he or she should disclose the change in the next upcoming Board Meeting, also he or she shall disclose in the annual disclosure to be made in the 1st Board Meeting of the F.Y.
• The Company shall on & from the 15th day of its incorporation & at all-time thereafter have a registered office which is capable of getting & acknowledging all official communications & notices as may be addressed to it. Verification of the registered office is to be filled in Form INC-22 within 30 days of Company Incorporation.
• It is compulsory for the Company to have its name board outside its registered office along with Company’s Name, CIN, address, phone number, fax number, email id & website address, if any.
• It is necessary for the Company to have a PAN & TAN right after its incorporation. Even, these are the basic credentials required to open a new Bank Account in India.
• Filing & maintaining of P&L Account, annual return & balance sheet every Financial Year together with an auditor’s report before the due date with the ROCs is necessary for the Company.
• As per Companies Act, the Company is also required to conduct minimum 4 board meetings during the calendar year at stipulated intervals & also ensure that all the Minutes of the Board Meeting are safely retained until Company exists. The Minutes of the Meeting (MoM) required to be prepared within 15 days of the meeting & can be finalized within the 30 days of the meeting.
• Issuance of Share Certificates to the shareholders is a vital requirement & all details of such issuance of share certificate are required to be maintained & mentioned in the Register of Allotment.
• In India, every Company is required to maintain certain Statutory Registers under Section 85, Section 88, etc., of the Companies Act, 2013 & required to keep & maintain at its registered office in the prescribed form. In case of any failure in maintaining the statutory register, the Company & Directors may be fined & prosecuted.
• There are some more important compliance measures where a Company is required to intimate the ROCs. It includes appointments & removal of Director and certain other changes in the prescribed manner.
• The Companies Act, 2013 has also introduced the CSR or Corporate Social Responsibility provisions. Provisions under the CSR, companies are obligated to make the contribution in some philanthropic activities. Companies must fulfill the CSR criteria & undertake CSR activities in the Financial Year.

All the above-mentioned compliance requirements only apply to the Companies Act, 2013. Moreover, further registrations are required depending on the turnover & type of the business like GST Registration, Professional Tax Registration, etc. It is vital to note that the Company’s responsibility to comply with all rules & regulations provided in the Companies Act is not a one-time thing, but is a continuous affair.