Private Limited Company is the most popular and prevalent type of corporate legal entity in India. Private limited company certification is governed by the Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014. To register a private limited company, a minimum of two directors and two shareholders are required. A natural person can be both a shareholder and director, while a corporate legal entity can only be a shareholder.
NRIs are allowed to be Shareholders and/or Directors of a Company with External Direct Investment, making it the preferred choice of entity for foreign promoters. A type of company that offers legal protection, or limited liability for its stockholders but that places certain restrictions on its ownership. These conditions are defined in the company’s regulations or bylaws and are meant to prevent any hostile takeover attempt.
Unique features of a private limited company like limited liability protection to stockholders, separate legal entity status, ability to raise equity funds and perpetual existence make it the most recommended type of work entity for millions of small and medium sized businesses that are family owned or professionally managed.
Characteristics of Pvt ltd Company Registration in India
Members – For Private Limited Company Registration in India, at least 2 members are required and a maximum number of 200 members as per the provisions of the Companies Act, 2013.
Limited Liability – The liability of each shareholder or members is limited. It means that if a company faces loss under any circumstances then its stockholders are liable to sell their own assets for payment. The personal, individual assets of the stockholders are not at risk.
Perpetual succession – The company keeps on existing in the eyes of law even in the case of insolvency, death, the bankruptcy of any of its members. This leads to perpetual succession of the company. The life of the company keeps on existing always.
Index of members – A private company has a authority over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
Number of directors – A private company must have two directors. With the existence of 2 directors, a private company can come into action.
Paid up capital – It should have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
Prospectus – Prospectus is an exact statement of the company affairs which is expressed by a company for its public. However, in the case of private limited company, there is no such need to issue a catalogue because in this public is not invited to subscribe for the shares of the company.
Minimum subscription – It is the payment receive by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the payment then they cannot commence further business. In case of private limited company shares can be assign to the public without receiving the minimum subscription.
Name – It is compulsory for all the private companies to use the word private limited after its name.
Requirements of Pvt ltd Company Registration in India
Members – At least two members and a maximum number of 200 members or shareholders are required as per the companies’ act 2013 before registration of the company.
Directors – At least two directors are required for registering the private limited company. Each of the directors should have DIN i.e. director identification number which is allotted by the ministry of corporate affairs. One of the directors must be a resident of India which means she/he should have stayed in India for not less than 182 days in a previous calendar year.
Name – It is one of the big components for a private limited company. The name of the company includes three parts i.e. the activity, the name and private limited company. It is mandatory for all private company to use the word private limited company at the end of its company name. Every company has to send 3-4 names for approval to the registrar of the company and all the names should be unique and expressive. The name for approval should not similar with any other companies name. So choosing the right company name is an valuable component is it will stay with the company throughout its life.
Certified office address – While going for the certification of the company, the owner should grant the temporary address of the company until it does not get register. However, when the company has been registered then its permanent address of its registered place should be suited with the registrar of the company. The Registered place of the company is where companies main affairs are been conducted and where all the documents are placed.
Obtaining digital signature certificate – In this modern world everything is done online. All certificates are submitted online and for that, every company must obtain a digital signature certificate which is used to verify the authenticity of the documents. A digital signature is acquired by all the directors which are marked on all the documents by every director.
Professional certification – In a company there are many specialists which have required for many purposes. For incorporating a private limited company by these professionals are mandatory. Various professionals such as chartered accountant, company secretary, cost accountant etc. are required to make their certification at the time of company incorporation.
Advantages of Private Limited Company
OWNERSHIP – In a public company, ownership and regulation of shares can be sold to the public on an open market. On the other hand, in a private company, shares can be transferred or sold to other people by the choice of the owner. Shares of such company are owned by founders or a group of private investors. Shares here are not sold in open market thus there will be a smaller number of shareholders. This means less confusion and complexity in decision making and management.
MINIMUM NUMBER OF SHAREHOLDERS – For a private company, at least 2 shareholders are required, whereas, for a public company, you require a minimum of 7 shareholders.
LEGAL FORMALITIES – Legal formalities are sometimes very time-consuming and expensive, aren’t they? If you are planning to begin a public company, you better be prepared because there is a long list of legal formalities for forming a public company. Private companies have comparatively shorter list.
DISCLOSING INFORMATION – A public company is necessary to disclose their financial reports to public every quarter, as it will affect public investment; private companies are not subjected to any such compulsion.
DECISION MAKING AND MANAGEMENT – Decision making and management becomes more complex and confusing in public companies as a greater number of shareholders are to be consulted. This complicated procedure is eliminated in private company as the number of shareholders is less.
FOCUS OF MANAGEMENT – Managers of Public Company are focused on rising the number of shares, whereas managers of the private company are more flexible in the short term and long-term business decisions.
STOCK MARKET PRESSURE – Private restricted corporations don’t seem to be controlled by the securities market and you don’t need to worry regarding investor expectations and interference as long as they work inside the law. Shareholders in public companies are attracted on current earnings and they exert pressure on the company to increase earnings.
LONG TERM PLANNING – Managers of public limited companies are pressurized to increase earnings in the short term in order to increase the value of their stock. Private companies can focus on long-term earnings as such pressure is thrown out.
MINIMUM SHARE CAPITAL – You will be requiring a lot of money for a public company. A public company requires at least share capital of Rs. 5,00,000. For a private company, the earlier minimum number of share capital was Rs. 1,00,000, but now there is no such minimum obligation therefore, there is no pressure of fund requirements.
CONFIDENTIAL – It is obviously not applicable, for competitors to know about your business secrets. Confidential information such as legal settlements, executive compensation, and other essential information cannot be kept reserved in public companies. Such information is more protected in a private company.
Required documents for Private Limited Company Registration
1. ID Proof of all Directors
Any one ID proof like AADHAR Card, Voter Card, Driving License or Passport required.
2. PAN card of all Directors
3. Any one address proof
- Bank statement having latest 60 days entry
- Bank Passbook with entries page having latest 60 days entry
- Electricity Bill in name of Director
- Airtel / Vodafone / Idea / MTNL / BSNL bill in name of Director
- Gas bill in name of Director
4. Passport size photo of all Directors
5. Any one bill in anybody name for registered office address
- Electricity Bill
- Mobile Bill – Airtel / Vodafone / Idea / MTNL / BSNL bill
- Gas Receipt (not Gas book)
The major ownership restrictions are:
Stockholders cannot transfer or sell their shares without offering them first to other shareholders for purchase, Stockholders cannot offer their shares to the general public over a stock exchange, and The number of stockholders cannot surpass a fixed figure (commonly 50).
A private limited company is a company which is privately held for small-scale businesses. The responsibility of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly changed.
Therefore, a Private Limited Company is less complex compared to a Public company. It is comparatively less time-consuming and less expensive. Read more about online registrations here.