What is a Private Limited Company in India?

What is a Private Limited Company in India?

Table of Contents

  • Introduction
  • What is a Private Limited Company?
  • Key Characteristics
    • Comparison Table
  • Advantages and Disadvantages
    • Examples
  • Compliance Requirements
    • Statutory Registers Table
  • Steps to Start a Private Limited Company
    • Cost Breakdown
  • FAQs
  • Conclusion

Introduction

Starting a private limited company in India can be a smart business decision for many entrepreneurs. However, the process and compliance requirements involved can also seem daunting to those unfamiliar with it.

This comprehensive guide breaks down everything you need to know if you’re considering setting up a private limited company in India. You’ll learn what a private limited company is, its key traits, the major pros and cons with real examples, legal compliance needs, step-by-step process to register one, estimated costs and answers to some frequently asked questions.

So if you want to make an informed decision about forming a private limited company for your business in India, you’re in the right place!

What is a Private Limited Company?

The Companies Act 2013 mandates the registration of private limited companies, distinct legal business entities owned by their shareholders. The term “private limited” signifies that the company remains privately held, with no aspirations to list on a stock exchange.

India’s private limited companies limit shareholder liability to the extent of their shareholding, safeguarding the personal assets of directors and shareholders in case of business failure.

Private limited companies must have at least two directors and shareholders, with restrictions on the maximum number of directors and an overall ownership limit of 200 shareholders.

Key Characteristics

Some key traits of a private limited company include:

Comparison Table

ParameterPrivate Limited CompanyPartnership Firm
Legal Entity StatusSeparate Legal EntityNo separate legal entity
Owners LiabilityLimited to shareholdingUnlimited personal liability
RegistrationCompulsory under Companies ActNot legally required but optional
Compliance NeedsHighLow
Transfer of OwnershipEasy via share saleChallenging without consent

So in a private limited company, owners enjoy protection from personal liability along with increased credibility, perpetual succession and easier transfer, despite higher compliance responsibilities.

Advantages and Disadvantages

Advantages of a Private Limited Company

  • Limited liability for owners safeguards personal assets
  • Increased credibility with banks, customers
  • More financing options
  • Attract investor funding more easily
  • Perpetual succession despite ownership changes
  • Smooth transfer of stake through share sale

Disadvantages of a Private Limited Company

  • Complex legal and accounting compliance
  • Increased statutory reporting needs
  • Higher setup and operational costs
  • Lack of privacy due to public reporting

Real-World Examples

A private limited company structure can be beneficial to high-risk manufacturing business owners as it shields their personal wealth or assets from substantial product liability claims.

Similarly, an online retailer private limited company may find it easier to raise external investor capital for scaling up quickly compared to being a proprietorship.

Compliance Requirements

To maintain active status, a private limited company in India needs to follow several regulatory requirements under the Companies Act 2013. Some examples include:

Statutory Registers Table

RegisterPurposeMaintenance
Register of MembersRecords shareholding changeUpdated regularly
Register of ChargesTracks assets charged as securityUpdated within 30 days
Register of Loans/Investments/GuaranteesRecords financial transactionsUpdated within 7 days
Register of ContractsTracks contracts detailOngoing

Additionally, filing annual returns, financial statements, company secretary compliance reports, holding board meetings as per guidelines etc. also fall under compliance obligations.

Neglecting compliance needs can incur heavy penalties or even force dissolution. Therefore, it’s advisable to employ professional help like FilingWala to meet all regulatory needs.

Steps to Start a Private Limited Company

Here is an overview of the typical 8 Steps process to form a private limited company in India:

1. Apply for Director Identification Number (DIN)

Every director needs a unique DIN before company incorporation. It requires identity proof submission and fees of Rs. 500 per applicant.

2. Name Approval

You need to propose 1-6 unique names in order of preference and get availability approvals. Check name rules. Approval validity is 60 days.

3. Prepare Incorporation Documents

Key documents include draft MOA, AOA and forms like INC-32, INC-22 etc. with digital signatures.

4. Company Incorporation Application

File the documents and fees for company registration application with the ROC. Typical fees is Rs. 4700 for normal incorporation.

5. Make Company Seal/Stamp

Companies must obtain a company seal/stamp bearing their approved name, registered address, and CIN within 60 days.

6. Company PAN and Bank Account Opening

You need to then apply for company PAN. Then open a business bank account in company name within 30 days.

7. Commence Operations

With certificate of incorporation, company name, PAN and bank account – you can start business operations.

8. Maintain Records and Compliance

Keep meeting reporting rules, submit filings, and maintain all registers/statements to avoid non-compliance penalties.

Approximate Breakdown of Private Limited Company Registration Costs

ExpenseEstimated Cost
Government registration and services feesRs. 1,559
Consultant/lawyer charges/CA charges for
incorporation procedure
Rs. 5,000
Stamp dutyRs. 1,300
Digital signatureRs. 2,500
PAN applicationRs. 141
Company seal/stampRs. 1,500
TotalRs.12,000
The cost of in-depth consultation for company type selection varies depending on the complexity of your specific case.

Additional post-incorporation running costs apply as highlighted before.

FAQs

What types of private limited companies exist?

Based on business activity, some types are trading, manufacturing, investments, holding, services, producer companies etc. There are also One Person Companies.

What is minimum paid-up capital for private limited company registration?

No minimum paid up capital is prescribed in Companies Act 2013. You can start with just Rs. 1 lakh or less.

Is a private limited company right for my small business?

A private limited company may be an appropriate business structure for seeking external investment, liability protection, perpetual succession, and credibility with banks and vendors.

Can foreigners set up a private limited company in India?

Yes, foreigners can invest in Indian private limited companies by getting government approvals through RBI under FDI rules and meeting eligibility criteria.

Conclusion

We’ve covered the ins and outs of private limited companies in India – from understanding what they are and their features to weighing the pros and cons with real examples. Additionally, we’ve provided you with a handy checklist covering rules to follow, expected costs, and a step-by-step guide on how to register under the Companies Act 2013.

Transitioning to practical assistance, if you’re considering setting up a private limited company, turn to FilingWala for expert support. We specialize in guiding you through the entire process – from initial registration to ongoing maintenance. Beyond that, we adeptly handle other aspects like taxes and compliance, ensuring a seamless experience for you.

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