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Thinking of starting a private limited company? Read this guide

Table of contents

·        What is a private limited company?

·        Features of Private Limited Company

·        Requirements to start a  Private  Ltd company

·        Benefits of a private limited company

·        Disadvantages of a private limited company

·        Such documents required to register such a company

·        How to register a Private Limited Company

Private Limited Company is a privately held business entity. It belongs to private shareholders. The liability arrangement consists of a limited partnership, in which the shareholder's liability extends only to the number of shares they hold.

The startup ecosystem is booming across the country and more and more people are looking to do something on their own, need to be familiar with different business registration types such as sole proprietorship, limited liability partnership and private limited company. In this article, we will talk about different aspects of a private limited company.

What is a private limited company?

As the name suggests, a private limited company is an organization with a private business. It belongs to private shareholders. In a private limited company, the liability system consists of a limited partnership, in which the shareholder's liability extends only to the number of shares they hold. Stakeholders cannot be held liable beyond the value of the shares. The governing body for such a company is the Ministry of Corporate Affairs (MCA).

Section 2 (68) of the Companies Act, 2013 defines a private company as follows:

“A company with a minimum paid-up share capital as prescribed, and which, through its articles, - (i) restricts the right to transfer its shares; (ii) except in one person company limits the number of its members to two hundred, excluding the company; (iii) Prohibits the public from inviting subscriptions to any of the Company's securities.

Features of Private Limited Company

Now that you know what a private limited company is, the next step is to know the features of such a company:

• Membership: Like any other company, such a company requires at least two shareholders to start. But since it remains a small organization, there is also a maximum limit on the number of fixed members of 200. The company also needs two directors to run it

• Limited Liability Structure: In a private limited company, the liability of each member or shareholder is limited. Therefore, in the event of a loss under any circumstances, the shareholders are liable to sell their own property for repayment. However, there is no risk to the shareholder's personal assets

Independent Legal Entity: This is a separate legal entity and it lasts forever. This means that even if all members die, or the company goes bankrupt, the company still exists in the eyes of the law. The life of a company will be permanent without being dissolved by resolution, without affecting the lives of its shareholders or members.

Paid Minimum Paid-up Capital: The minimum paid-up capital of a private limited company is Rs. 1 lakh. From time to time it can go higher as stated by the MCA

Requirements to start a private limited company

Each business type has its own set of requirements before being included. The requirements for registration are as follows:

Members and Directors: As mentioned above, in order to legally register itself, a private limited company must have a minimum of two and a maximum of 200 members. This is a statutory requirement under the Companies Act 2013.

Directors must meet the following conditions:

Each director should have a DIN i.e. Director Identification Number issued by the Ministry of Corporate Affairs

The director must be a resident of India, which means he must have resided in India for at least 182 days in the previous calendar year

Company Name: Choosing a company name is often a technical task. A private limited company needs to include three aspects when deciding its own name:

1. The main name

2. Activities to be done

3. Finally mention of ‘Private Limited Company.

Pro Tip: It is not always necessary that the name of the business owner you are looking for be available, as no two companies can have the same name. Therefore, it is required that at the time of registration each company would have to send 5-6 names to the Registrar of Companies (ROC) for approval. Furthermore, the names submitted should not closely resemble any other company name.

Registered Office Address: Once the company is registered, the permanent address of its registered office must be submitted to the Registrar of Companies. The registered office of the company is where the main operations of the company are carried out and where all the documents are kept.

Obtaining other documents: For electronic submission of documents, each company must obtain a digital signature certificate which is used to verify the authenticity of the documents. Furthermore, certification of these professionals is required in the company hiring professionals (Secretary, Chartered Accountant, Cost Accountant etc.) for various undertakings.

Advantages of a private limited company

•        Limited liability: A private limited company has limited liability, which means that the members of the company are not at risk of losing their private property. If a company fails, the shareholders are responsible for selling their assets for payment

·        Less Number of shareholders: Unlike a public company which requires seven shareholders, a private limited company can be started with only two shareholders.

•        Ownership: As the shares of the company are owned by the investors, founders and management, the owners have the freedom to transfer and sell their shares to others.

•        uninterrupted Existence: As mentioned earlier, the company survives legally until it is legally closed, the company continues to operate even after the death or departure of any member.

Disadvantages of Private Limited Company

The main disadvantage to a private limited company is a compliance formality to close it. This was often very complicated and time-consuming.

Documents required to register such a company

Documents required for a private limited company are:

 ID Proof: PAN Card and Passport of Indian and Foreign Directors respectively

Proof of Address: Ration Card or Aadhar Card or Driver's License or Voter Identity Card

Proof of residence: Bank statement or place electricity bill

• Notarized lease agreement

The NOC from the property owner

Sale Deed or copy of property deed (for property owned)

How to register a private limited company

Once you've determined the name for the company, follow the steps outlined below:

# 1: Apply for DSC (Digital Signature Certificate)

# 2: Apply for DIN (Director Identification Number)

# 3: Apply for name availability

# 4: Enter EMoa and EAOA to register a private limited company

# 5: Apply for company PAN and TAN

# 6: Certificate of incorporation with PAN and TAN will be issued by ROC

# 7: Open a current bank account in the name of the company

With this, you will be ready to start your own private limited company. It is advisable to consult the right people and make the best choice for smooth growth.

You may contact the author for any query/suggestion at +91-9769201316 or santoshpatil@alltaxfin.com

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