A private limited company is one of the most popular business structures for entrepreneurs and investors. This type of company offers limited liability protection to its shareholders and is a separate legal entity from its owners. It is governed by the Companies Act, 2013 and the Ministry of Corporate Affairs regulates the registration process.
A private limited company is another name for a privately held corporate entity. The company’s management is overseen by private stockholders. The liability structure of a private company is similar to that of a limited partnership in that a shareholder’s liability is equal to the number of shares held. With new businesses popping up all over the country, it’s critical to understand the various business structures available, such as sole proprietorship, limited liability, and private limited company.
If you’re planning to start a business in India and considering the private limited company structure, there are certain things you need to know before registering your company. In this article, we’ll cover the essential information about private limited company registration in India.
Table of Contents
What is a Private Limited Company
A private limited company is a type of business structure in which the company is privately owned and has limited liability. This means that the owners or shareholders of the company are not personally liable for any debts or losses incurred by the company beyond their investment in the company.
Private limited companies are often used for small to medium-sized businesses and have legal restrictions on the transferability of shares, making them less open to public investment. They are required to have at least two directors and can have up to 200 shareholders. Private limited companies are also required to file annual financial statements with government authorities.
Private Limited Company Registration Online
E-StartupIndia professionals make it simple to register a company. You must find at least two people who are qualified to serve as directors and shareholders in the company.
Company registration is quick and simple, and can be completed online in three simple steps:
- Step 1: Speak with one of our advisors, who will walk you through the documentation requirements for company incorporation.
- Step 2: Based on availability, we assist you in selecting the best company name.
- Step 3: We prepare and file the required ROC forms (DIR, MOA, AOA, COB, and so on) and register your business with the Ministry of Corporate Affairs.
Online Company Registration Eligibility
Before proceeding with private limited company registration, we must ensure that the qualifying requirements outlined in the Companies Act of 2013 are met.
A minimum of two directors are required
A private limited company must have at least two directors and up to fifteen directors. At least one of the company’s directors must be an Indian national. If you don’t have two directors, don’t worry; you can register a one-person company.
Distinctive Company Name
Your company’s name should be distinct and one-of-a-kind. The proposed company name should not be similar to any existing Indian registered companies or trademarks.
Required Minimum Capital Contribution
There is no minimum capital requirement for starting a business. You can also incorporate a company with a paid-up capital of Rs.1/-. A company, on the other hand, must be registered with a minimum authorized capital of Rs. 1 lakh.
Registered Address
The Proposed Company must have an address in any location within the State where you wish to register a private limited company.
A company’s registered office does not have to be a commercial location. If the landlord provides a letter of authorization, even a rented house can serve as the registered office.
Documents Required for the Formation of Private Limited Companies
- Bills for electricity or other utilities for the address evidence of the Registered Office Photographs of all Directors
- All Directors’ PAN Cards
- Proof of all partners’ self-attested residential addresses (electricity bill/latest bank statement/mobile bill) (not older than 2 months)
- All Directors must provide identification (driver’s license/passport/voter ID).
What is the Difference Between a Private Limited Company and a Public Limited Company
The difference between a Private Limited Company and a Public Limited company is very simple. However, some people make it very complex but we believe in simplicity. And, in the following section of the article we have mentioned the difference between private limited companies and public limited companies. They are as follows:
- A private limited company is abbreviated as Pvt ltd, whereas a public limited corporation is abbreviated as Ltd.
- The shares of an Ltd company are listed on the stock exchange, whereas the shares of a Pvt ltd company are not.
- An Ltd company’s shares are traded on the stock exchange, whereas a Pvt ltd company’s shares are not.
- The shares of an Ltd company are transferred through a stock exchange transaction, whereas the shares of a Pvt Ltd company are transferred with the permission of all shareholders.
Private Limited Company Advantages and Disadvantages
After, knowing about what is a private limited company and its entire registration process let us look at the advantages and disadvantages while establishing a private limited company. They are as follows:
Private Limited Company Advantages
- Liability: Organizations in business have limited liability. It allows the owner’s wealth to be protected. Furthermore, the company’s debt is not its obligation. As a result, they are not required to sell their assets to pay off the company’s debts.
- Legal entity distinct from others: Because the company is a separate legal entity from its owners, lawsuits against shareholders do not follow.
- Resource: A company’s business structure is typically more organized than that of a sole proprietorship.
- Capital: Companies can sell shares or issue debt securities in the capital market in addition to capital injections from existing shareholders. As a result, it is easier for businesses to raise funds to support future growth. When a company sells its shares for the first time (in what is known as an initial public offering), it becomes a public limited company.
- Continuity: Even if the shareholders change, the company continues to exist. Similarly, the death of a shareholder or director does not result in the death of the company.
- Control: The original owner has the option to keep control. Furthermore, their ownership is not diluted because the company does not sell its shares on the stock exchange.
- Confidentiality: Strategic and critical information, such as financial statements, are under the company’s control. A public limited company, on the other hand, is required by the regulator to publish certain documents.
Private Limited Company Disadvantages
- Establishment: These businesses are more difficult to establish and necessitate more paperwork and requirements. As a result, regulatory costs (legal and administrative) are also high. Furthermore, due to severe bureaucratic problems in some countries, obtaining legal formalities can be time-consuming.
- Dividend: Dividends may not generate income for shareholders. Dividends may not be distributed and reinvested in the business (known as retained earnings). As a result, the owner receives no compensation.
- Complexity: Business operations are more complicated and involve a large number of documents, such as standard financial statements and taxation.
- Transparency: It is more difficult for the public or regulators to obtain information about companies, such as financial statements. A private limited company, unlike a public limited company, is not required by law to publish such information.
- Potential conflict of interest: Directors may pursue their interests and profits at the expense of the owners’ interests. This is because business decisions are made by the directors, not the owners, as opposed to a sole proprietorship, where business decisions are made by the owners. This can then lead to agency issues.
- Ownership transfer: Because their shares are not publicly traded on the stock exchange, older shareholders find it difficult to sell them. They can only sell their shares if the other shareholders agree. Similarly, newly issued shares cannot be sold on the open market.
Conclusion
Thus every type of limited company, whether public or private, has its own set of rules. These businesses were formed for a specific purpose, and they must follow the laws and regulations established by the country’s government. Private Limited Companies, on the other hand, are granted several exemptions and benefits under the Companies Act if they engage in social work.
We at InstaSpaces have a leading team of professionals who are capable of providing a quick and error-free Online Company Registration Service in India. We aim to provide comprehensive incorporation, compliance, advisory, and management consultancy services to clients across India.
Our professionals have been performing frequent online company registrations daily and have kept up to date with MCA’s new registration procedure changes. As a result, we can provide you with the best MCA functionality.
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