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A private limited company is a limited liability entity that can have a maximum of 200 shareholders. The Companies Act 2013 prescribes a minimum of two shareholders for a private limited company. These companies will usually be a small business establishment. In Private limited companies, owner liability will be limited to the extent of the contribution that the shareholder has made. Shareholders are not allowed to trade their shares publicly. However, the shares can be transferred, but only with the approval of the Board of Directors. This prevents the involvement of the general public in private businesses. It will be very convenient for families or groups that do not want outsiders to subscribe for the shares of the company. The lesser the number of shareholders, the lesser the complications involved in administration and management.
Private Limited Companies are legal entities that have perpetual succession; which implies, the company exists in the eyes of the law even if any or all of its members die, or the company becomes insolvent or bankrupt. The company will be the same even if there is change in members. A private limited company requires a minimum of two directors to be operational; of which one must be a resident of India. The maximum limit of number of directors is 15, however, it can be more than 15 after passing a special resolution in general meeting.
The advantages of private limited companies are plenty when compared to public limited companies. For starters, the legal formalities involved are comparatively lesser. Issuing of prospectus too is not required of a private limited company since the public is not welcome to hold shares. It is not necessary for these companies to publish their financial reports in newspapers. There is no pressure of meeting the shareholders’ expectation in terms of stock market, for private limited companies. Unlike public limited companies, private companies are free to focus on long-term earnings. It is never mandatory for them to sweat on increasing earnings in short term. Confidential information such as executive compensation and legal settlements remain confidential in private companies. When compared to LLPs and OPCS, Private Limited Companies have myriad options available to raise funds through Angel Investors and Venture Capitalists.
LLP can be converted into Private Limited Company. Conversion of LLP to Private Limited Company opens prospect for more growth. Once a Non Objection Certificate (NOC) is granted by the ROC where the LLP is registered, incorporation of the Private Limited Company can be undertaken. Similarly, Public Limited Companies and One Person Companies too can be converted into Private Limited Companies.
Income of Private Limited Companies having turnover upto Rs. 400 Crores are taxable at 25% plus 4% Health and Education Cess as per section 115BA. There is a surcharge of 7% if the company’s income is above Rs.1 crore and but does not exceed 10 crores. If the income exceeds 10 crores, then the surcharge will be 12%.
A few conditions need to be kept in mind as for the choice of names. The name should be unique; it should not be a name already taken by other registered companies. There are names that are prohibited under the ‘Emblems and Names Act, 1950’. Those names cannot be proposed. The company name must bear the suffix ‘Private Limited Company’. Usually, the name will be approved in 3 to 5 working days.
The registration process is online. Digital signature is mandatory. DIN is not required to take from any certifying agency.
MoA stands for Memorandum of Association, which represents the charter of the company, and AoA stands for Article of Association, which details the internal rules and regulations of the company. These two required to be filed physically earlier. Now they can be filed online on the Ministry of Corporate Affairs (MCA) portal.
Once the aforesaid documents are filed and fee is paid, the certificate of Company Registration will be issued by the Registrar of Companies. The company will be incorporated and it becomes a legal person separate from its members.
For Directors/Shareholders:
(Mandatory For Indian Resident)
(any one)
(any one)
For Company in Registration:
A Utility Bill (Telephone bill, Electricity bill or Gas bill not older than two months) in owner’s name.
A couple of things need to be undertaken within 30 days from the date of incorporation
Also, the company shall obtain a certificate of commencement of business within 180 days from the date of incorporation.
A Private Limited Company is a small business establishment whose number of shareholders is limited to a maximum of 200.
Private Limited Companies typically benefit families and groups that do not prefer outsiders on the board.
A minimum of two and a maximum of 15.
At least one of the directors should be a citizen of India
The shares of a Private Limtied Company are non-tradeable. However, the shares can be transferred with the consent of the shareholders.
There was a minimum paid-up capital of Rs. 1 lakh earlier. Now, there is no such requirement.
No, the financial report of the private company may remain confidential until it files with ROC. Once it is filed with ROC it is available for public in Public domain.
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