A private limited company is a company that is privately held by a small group of people for small businesses. The liability of the members (shareholders) of a limited liability company is limited to the number of shares they hold. Private Limited Company shares cannot be publicly traded. Startups and companies with higher growth requirements generally choose private companies as a suitable business structure.
Private Limited Company Registration
- Business Name Approval
- 2 DIN & 2 DSC
- Incorporation Certificate
- MOA & AOA
- PAN & TAN
- MSME Registration Certificate
The business unit is recognized as a company in India by registering under the Companies Act 2013. The governing body is the Ministry of Business Affairs, commonly known as the MCA. The definition of a private company by law is provided here to understand its basics. Section 2 (68) of the law defines a private company as follows:
Property defined by the share capital:
The shareholders are the authorized owners of the company. Ownership of a limited liability company is defined by the share capital. Shares are the same part of the company’s capital. The ownership relationship is defined by shares held by the owners of the company.
Such an investment agreement is one of the reasons why an investor is interested in the type of company. Equity is a convenient option for them to track ownership of a company. Also, the shares can be issued against a premium to introduce more capital, which simplifies the investment process.
Ownership in the form of shares is easily transferable compared to the capital of other structures such as LLP. However, it is subject to the limitation mentioned in the definition above. If a shareholder wants to exit the company, he must first offer the shares to an existing member and then to a third party. Besides, the proposed transfer must be approved by the board members for the good of the company. This type of restriction is intended to keep the company’s private property. Besides, shareholders cannot trade shares publicly or on the stock exchange like a listed company.
The number of members:
Shareholders in a company are also referred to as members. At least two members are required to register a limited liability company in India. Here an individual or even a legal person can become a member of the company. The number of members of a private company is limited. The same applies to a maximum of 200 members. The exception to this is One Person Company, where there is only one member.
To calculate the number of members in a private company, further consideration is made afterward.
If two or more people hold shares together, they are considered one shareholder for this purpose.
ESOP is an option to issue shares to a person employed by the company. Such a person, whether not included in the calculation. This includes the company’s current and former employees who continued to be members after the termination of their employment.
Prohibition to invite the public to subscribe for securities:
By definition, private companies are prohibited from inviting the public to subscribe to securities. Public companies can issue a prospectus to invite the general public to raise capital. However, this is not permitted for a private company. It is forbidden to invite public subscriptions by issuing such documents.
Why is a Private Limited Company preferred by startups?
Private Limited Company is a preferred structure of startups due to growth opportunities and stability that this structure offers. Also, it ensures a legal existence separate from its members. So it can be contracts and legal proceedings in your name. Also, the status of a company remains unaffected by changes in members and management.
A separate board, i.e. H. A board of directors is advantageous for members who are interested in investment purposes. When the board of directors works on the remuneration, the members receive a dividend.
It also offers various financing options in the form of private equity, ESOP and more. This makes it suitable for external funding options. Therefore, it is preferred by VCs, Angel Investors, and other external funding agencies over any other business structure. It is also preferred by banks and credit institutions due to the credibility that it has as a corporate structure.
A private company can register with the Indian Government’s Startup India Scheme. This system offers several advantages, including tax exemptions for the recognized startups.
For these reasons, this is a priority for both family businesses and startups. If service-oriented companies opt for LLP, Pvt Ltd is suitable for product-based and growth-oriented companies.
Types of private companies:
Based on capital: A private company can be enlisted with or without shared capital. The type of capital-based company is specified in the company’s MoA capital clause.
Based on liability: The liability of members can be limited or unlimited. As a rule, companies are registered in India with limited liability. For companies with participations, the liability of the members is limited to unpaid capital from subscribed shares. For companies without participation, the agreed liability amount is stated in the MoA of the company in the form of capital.
One person company: One person company, popularly known as OPC, is a type of limited liability company registered with only one shareholder. This structure benefits such a promoter who does not want to share ownership.
Benefits of registering a private limited company
Pvt. Ltd. The business registration process is rigorous enough to make this structure credible, among other things, which makes it easier to collect funds or borrow from external sources. The organization itself offers many opportunities to collect donations in the form of private equity, ESOP and more.
Separate legal existence
Once the company’s registration in India is complete, a legal person is born in the eyes of the law. This separates from its owners and managers. The company can change its name simply by opening a bank account for its assets and entering into a contract with parties. This also offers the company the right to sue third parties in the event of failures.
Limited liability of the owners
The company’s obligation or debts do not encumber the owner’s assets. Your liability remains limited to the capital you have subscribed to and not paid for.
Separation of management and ownership
The separate ownership and management help both the company and management to focus on their potential work. The shareholders’ transfer responsibility for the operation and management of the company without losing control in the form of votes.
Documents required to enlist a private limited company
PAN card of shareholders and directors.
Foreigners must present a valid passport.
Proof of Identity
Aadhar card and voter ID/passport/driving license of shareholders and directors.
Proof of address of the director
Last telephone bill/electricity bill/bank statement of shareholders and directors.
Latest passport photo of shareholders and directors.
Proof of business address
Last electricity bill/telephone bill of the registered address
NOC from the owner
No certificate of objection can be obtained from the owners of the registered office
If necessary, a rental contract for the seat must be submitted
In the case of NRI or foreigners, documents of the director (the directors) must be notarized or apostilled.
Registration process of a private limited company
Once a name is set for the company, the applicant must take the following steps:
Step 1: Apply for DIN (Director Identification Number) & DSC (Digital Signature Certificate).
Step 2: Apply for name availability
Step 3: Submit the MOA and AOA to register the limited liability company
Step 4: Apply for the company’s PAN and TAN
Step 5: The incorporation certificate is issued by RoC with PAN and TAN
Step 6: Open a current bank account with the company name
Compliance after establishment
All companies registered in India are required to ensure compliance with various regulations. Failure to comply may result in penalties or disqualification of directors. IndiaFilings can help you with bookkeeping and regulatory compliance for the company at a very affordable price.
Some of the most important conformities for companies registered in India include, but are not limited to:
Appointment of the auditor: The Board of Directors must appoint a practicing auditor within 30 days of its establishment.
Start of business activity: Within 180 days of the foundation, the capital specified in the MOA (Memorandum of Association) must be deposited with a bank and the certificate of the establishment must be obtained from MCA.
Income Tax Return: Companies registered in India are required to file income tax returns on Form ITR-6 each year.
Annual Return: Companies registered in India must submit an annual MCA Return in the form of AOC-4 and MGT-7.
DIN KYC: The DIN KYC process must be completed each year for the company’s directors.
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