What is a Private Limited Company?

A company that is held privately on a small scale and is run by a non-government organization is known as a private limited company which is  also known as “PVT. LTD”. A private limited company has limited liability. They have relatively less number of members or shareholders. Generally, a private limited company does not offer shares to the public in the stock market.

What is a Private Limited Company?

Companies Act, 2013 allows the members of the company to operate in different levels of liability.  There are three different types of a private limited company.

TYPES OF PRIVATE LIMITED COMPANY

  1. Company limited by shares:-

In a private limited company limited by shares, a member’s liability is limited to a minimum share capital amount which is mentioned in the memorandum of association. The shareholder is only liable to pay his/her share of capital and not more than that.

  1. Company limited by liability:- 

In this type of company, a member’s liability is limited to the liability each member undertook in the memorandum of association. Moreover, the company is not liable for a sum greater than the amount of guarantee performed by the member in the Association Memorandum.

  1. Unlimited Companies:- 

In this type of business, there is no limitation of liability for the members. Their liability can  exceed up to the company’s entire debt and liability.

REGISTRATION OF PRIVATE LIMITED COMPANY

REGISTRATION OF PRIVATE LIMITED COMPANY

A private limited company is completely a separate legal entity and has limited liability. There is no minimum capital requirement for the registration of a private limited company whereas a public limited company should have a minimum capital requirement of 5 lac. A private limited company should consist of minimum 2 members and maximum 200 members or shareholders. 

According to the Companies Act, a private limited company should have at least two board of directors and maximum 15 directors. Among all the Board of directors at least one should be a resident of India. Through foreign direct investments(FDI), NRI’s can also be a shareholder or director of the company.

DOCUMENTS FOR THE REGISTRATION OF PRIVATE LIMITED COMPANY

The law considers a private limited company as a separate legal entity. Thereby the company having members and shareholders has to follow necessary steps for registration. Following are the documents required for the registration of a private limited company.

  • Passport size photograph.
  • Pan card
  • ID proof:- passport/ Driving license/Voters ID (Aadhar card shall not be accept)
  • Address proof:- Telephone bill/Mobile bill/Latest bank statement with transaction
  • Specimen signature
  • Other information.

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STEPS FOR REGISTRATION OF A PRIVATE LIMITED COMPANY

For registration of a private limited company in India, you need to follow the necessary guidelines mentioned in the Ministry of Corporate Affairs (MCA) portal. Earlier the process of registration was difficult because one needed to fill different forms for PAN, TAN, DIN, etc registration but now instead of SPICE, you need to fill SPICE +( spice plus) form. It reduces the cost, time, and effort of the applicant. Following are the necessary steps for the registration of a private limited company.

  1. To obtain a Digital Signature (DSC)
  2. DIN (Director Identification Number)
  3. Name approval
  4. Form  SPICE  INC  32
  5. E-MOA INC 33 and E-AOA INC 34
  6. PAN AND TAN  APPLICATION
  • TO OBTAIN A DIGITAL SIGNATURE (DSC):- 

To start a private limited company one needs a digital signature. All the process of registration is online and a digital signature is required to file the forms for company registration. DSC is mandatory for all the witnesses and subscribers mentioned in the Article of Association (AOA) and Memorandum of Association(MOA).

  • DIN (Director identification number):- 

A director identification number should be obtained by the director of the company. It is an identification number for the board of directors of the company. One DIN is more than enough for a director to operate in more than one company.

There are two ways to obtain DIN.

Option 1:-  Fill form DIN 3 in this form director should mention their basic details along with address proof and identity proof like pan aadhar card etc. This option is available only for existing companies.

Option 2:- Filing with SPICe, under this procedure DIN gets issued to the director who does not have DIN. Under this procedure, there should be a maximum three number of directors to apply for DIN. If in case any company has more than three board of directors and all the three directors do not have DIN in that case applicants have to incorporate a company with three directors and later on after incorporation the company has two appoint a new board of director.

  • NAME APPROVAL:-

There are two options first approval of the name of the company

Option 1:- In this option, you can name the company via RUN (reserve unique name). In this, ministry of corporate affair has introduced the web service to ease the procedure for existing as well as the new companies in a run you get only one chance to apply for it and in the case of rejection of name due to similarity of trademarks or the name with the registered company, there would be no second chances available. It means you have to make sure that the proposed name should avoid existing trademarks and follow the availability of guidelines to avoid rejection.

Option 2:- In this option, you can apply for the proposed name through SPICe it is as similar as the provisions in RUN. Moreover in the case of rejection though you will get a second chance to apply for the same and they won’t charge you extra fees for it which means you can go for a second chance. They charge ₹1000 for each form. But in case of failure to the first name, you can go for a second chance and you don’t have to pay extra for the whole process including the incorporation and as well as the name approval.

Hence from the given option, the second one seems to be cheaper and more prominent. The whole process including the incorporation and the name approval requires at least two to three days.

  • FORM SPICE INC 32:-

This form, which is introduced by the ministry of company affairs, has several benefits in a single application.

  1. Application for allotment of DIN(Directors Identification Number)
  2. Incorporation of a new company
  3. Application for PAN and TAN
  4. Reservation of company name

Before May 2015, filling up of several documents was mandatory for registration of private limited company such as INC 22 for registration of office, INC 7 for registration of the company with memorandum and article of association, DIR 3 for acquiring DIN, INC 1 for obtaining a name and finally a form DIR 12 for the directors but now all the forms are merged.

In form INC 32 the digital signature of a professional is required. The professional must mention accurate information in the form and the professional can be an advocate, company secretary, chartered accountant, or cost accountant.

  • E-MOA INC 33 and E-AOA INC 34:- 

E-MOA refers to an electronic memorandum of association whereas E-AOA is referred to as the Electronic Article of Association. Earlier memorandum of association and article of association were required to be filled physically but now these forms can be filled through an online process on the MCA portal which is linked with Spice INC 32. These forms must be signed digitally by the subscriber. This process was introduced to simplify the process of registration of a private limited company in India. Memorandum presents the charter of the company whereas the articles of the association consist of Rules and Regulation of the company.

  • PAN AND TAN  APPLICATION:-  

Using forms 49A for PAN and 49B for TAN you can apply for companies pan and tan through the single form of SPICe space the form is auto-generated once the spice form is submitted you have to download it and fix the digital signature and upload both the forms on MCA portal. Once all the requirements are fulfilled you will receive a CIN (corporate identity number) that will be allotted to you to track CIN online on the MCA portal.

There are certain Pros and Cons of a private limited company.

ADVANTAGES OF A PRIVATE LIMITED COMPANY

The private limited company is the most valued and trusted business entity in India. Following are the advantages of a private limited company.

  • Limited liability:- The shareholders of a private limited company have limited liability. In this case, they are only liable to pay the share for their liability only.
  • Legal Entity:- Law considers a private limited company as a separate legal entity. A company is solely responsible for their creditors and debtors, management of their liabilities and assets, etc, and not the shareholder. The company owes the money to the creditor and not the shareholder.
  • Raising Funds:- Even though registration of a private limited company involves complicated procedures but still it is largely preferred by entrepreneurs for raising funds from equity which at the same time has limited liability.
  • Trustworthiness:- A private limited company is the most trusted company. Under the Companies Act 2013, companies in India are registered with ROC (Registrar of Companies), and all the information of the board of directors is mentioned in MCA( ministry of corporate affairs).
  • Perpetual Succession:- This means a company is to be continued unless it is legally dissolved. A private limited company has uninterrupted and is to be continued even after the death or cessation of any of the members in the organization.

DISADVANTAGES OF A PRIVATE LIMITED COMPANY

A private limited company is said to be a separate legal entity. From limited liability to easy transferability a private limited company offers a lot of advantages. Here are some disadvantages of private limited companies.

  • Registration process:- The registration process of a private limited company comes with a lot of legal processes and formalities. The registration process takes about 10-15 business days. The cost for registration is 15899 (all-inclusive).
  • Compliance formalities:- A private limited company has to cope up with certain corporate compliance formalities which include maintaining compliance with tax and labor law irrespective of the type of business. All companies need to hold an annual general meeting, board meeting, file annual return, get accounts audited by the Ministry of Corporate affairs every year.
  • Division of ownership:- One of the major disadvantages is that a sole trader can start a private limited company. To start a private limited company you need a minimum of two people to act as a shareholder or director. However the government of India has introduced the concept of “ONE MAN COMPANY” to enhance entrepreneurship but for that, you need to cross the annual sales turnover of 2 crores.
  • Personal liability:- Only the members of the company enjoy limited liability whereas the company is solely responsible for its debts and liabilities. In some of the cases, the liability of directors and the members would also arise.
  1. When in any act or contract, the name of the company has been misdescribed, those who have actually done the act or made the contract, shall be personally liable for it;
  2. when in the course of winding up of a company, any business of the company has been carried out to defraud the creditors, persons who are knowingly parties to such conduct shall be personally liable for the debts of the company;
  • Winding up of a company:- Winding up a private limited company can be difficult as it involves a complicated procedure, is time-consuming, and costly whereas an unregistered partnership firm or sole proprietorship involves no such process.

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