A Complete Guide to Private Limited Company

A Complete Guide to Private Limited Company

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What is a Private Limited Company?
A Company is an association of persons who share common goals. Moreover, the owners of the company pool their resources in order to achieve their common goals. A private limited company is a closely held company with restriction to issue shares to the public. Thus that it cannot go for an IPO or list their shares on the stock exchange for public trading of their shares.

Registration of a Pvt Ltd Company in India is regulated by the Companies Act, 2013 and administered by the Ministry of Corporate Affairs.

Definition and Conditions as per Companies Act, 2013
Private Limited Company has a minimum paid-up share capital of Rs. 100 thousand or such higher capital as may be prescribed under section 2 (68) of Companies Act, 2013; and by its Articles,-

1) restricts the right of transfer of its share;

2) except in the case of One Person Company, limits the number of its members to 200 not including:

a) persons who are employees of the company; and

b) persons, who have formerly been in the employment of the company, were members of the company and have continued to be members after the employment ceased

3) prohibits any invitation to the public to subscribe for any securities of the company.

A Private company becomes a “small company“ in the following circumstances:

paid up share capital not exceeding fifty lakh rupees or such higher amount as may be prescribed (not be more than five crore rupees);
Turnover as per last profit and loss account does not exceed two crore rupees or such higher amount not being more than twenty crore rupees.
Note: None of the above is applied to a holding or subsidiary company.

A Private Company becomes a “small company” if the paid-up share capital does not exceed fifty lakh rupees and its average annual turnover during the relevant period does not exceed two crore rupees.

Incorporation of a Private Limited Company
The main steps of incorporation are discussed below:

Application for DIN
There must be at least two Promoters and at least two Directors. Promoters may be individual or body corporate who will promote/incorporate a company and Directors should be individuals. The individuals need to apply for DIN i.e. Director Identification Number in Form DIN 1 along with the prescribed documents.

To know more about DIN read: Procedure to Obtain DIN/How to apply for DIN

Digital Signature
Digital Signature is a must for any of the two Directors. There are total seven Certification Agencies authorized by the Controller of Certification Agencies to issue the Digital Signature Certificate.

To know more read: Requirement of a Digital Signature in a company

Name Approval
Next step involves application to the concerned Registrar of Companies (ROC) along with the prescribed documents and fees. The promoter can apply for six company names amongst which the ROC will approve only one. If the ROC rejects all the names, the applicant has another two chances to apply the name again with the same fees he has incurred.

MoA and AoA
After the name approval, the drafting of Memorandum of Association and Article of Association are drafted by the Directors/Promoters.

To know more read: MOA and AOA, its importance for the company and its members.

Company Incorporation
After the drafting of MoA and AoA, the Director will take the Professional Service i.e. from CA/ CS/ CWA to incorporate the company. E Forms 1, 18 and 32 are to be filed, Digitally signed by any One Director followed by Digital Signatures of Professional who certify that all the documents and information is correct one. Certificate of Incorporation will be generated, once the ROC approves the documents and Forms submitted. The Directors are to get the MOA and AOA printed and to comply all the compliance after the company registration

Documents Required for Private Limited Company Registration
Following are the documents that are generally required for Private Limited Company Registration

Copy of PAN Card of directors

Passport size photograph of directors

Copy of Aadhaar Card/ Voter identity card of directors

Copy of Rent agreement (If rented property)

Electricity/ Water bill (Business Place)

Copy of Property papers(If owned property)

Landlord NOC (Format will be provided)

Advantages of the Private Limited Company (Pvt Ltd )
There are numerous benefits of a Private Limited Company Registration as compared to other forms of companies. A private limited company is the most preferred form of business entity for startups

Seed Funding
Many start-ups register as a ‘Private Limited Company’ as it is the most preferred form of entity for seed funding by Vc’s and investors. It is thus the most popular form of business entity in India. Read why is a Private Limited company more suitable for Startups who want to go for seed funding.

Members
One can start the Pvt Ltd company, with the minimum of 2 members and maximum of 200 members as per the Companies Act, 2013.

Directors
Minimum  2 directors are required for Pvt Ltd Company. Directors and the shareholders can be the same person. No mandatory qualifications are required for the appointment of directors.

Capital
For Pvt Ltd Company, share capital of only  Rs 1,00,000 is needed.

Prospectus
The prospectus is a detailed document issued by the company which invites the public for the subscription of shares, debentures of a company. The issue of a prospectus is not required in Pvt. Ltd. Company.

Statutory  meetings
Statutory meeting of the members or filling of Report to the Register of Companies is not required.

Disadvantages of the Private Limited Company
In the Pvt Ltd Company, shares cannot be easily transferred unless other shareholders approved it.
The public is not allowed to buy the shares of Pvt Ltd Company.
Every private company should have to mention “Pvt. Ltd” at the end of the company name.

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