Private Limited registration for Businessman Gk legal solution

What is Private Limited Company – Definition, Advantages, Characteristics, Process and Documents Requirement

Ø  What is a Private Limited Company?

A Private Limited company is a company that is held privately by the members. In the case of a Private Limited company, the liability of the members is limited to the number of shares respectively held by them. Also, the shares of a private limited company cannot be traded. In this article we will discuss in details the following contents:

Ø  Definition

Ø  Advantages of Private Limited Company?

Ø  What are the features of the Private Limited Company?

Ø  The process to be followed to form a Private Limited Company

Ø  What documents are required for forming a Private Limited Company?

Ø  Conclusion

Ø  Definition:

Private Company means a company which is having a minimum paid-up share capital of rupees one lakh or such higher paid-up share capital as may be prescribed and which by its articles as mentioned in the Companies Act,2013.

a)  Restrict the right to transfer its shares.

b)  Excluding One-person company that limits the number of its members to two hundred; Provided that where two or more persons hold one or more shares in a company jointly, they shall be treated as a single member for this clause

Provided further that

1.   Persons who are employed by the company and

2.   Persons employed with the company and who are the members of the company while in that employment and have continued to be members after the employment ceased shall be included in the members.

3.   It also restricts any invitation to the public to subscribe for any securities of the company.

Ø  Advantages of Private Limited Company?

Let’s go through the advantages of forming a Private Limited Company

1)    Ownership:

In the case of a public company, the shares owned can be sold to the public in the open market. However, in the case of Private Limited company shares can be sold or transferred by the owner as per his wish. Shares of the private limited company are owned by founders, management and private investors. The shares of a private limited company cannot be sold in the open market. Thus, a private limited company is owned by a smaller number of shareholders which enables less complexity and confusion in decision making and management.

2)    A minimum number of shareholders:

In the case of Private Limited Company, a minimum of 2 shareholders is required. However, in the case of Public Limited Company, a minimum of 7 shareholders are required.

3)    Legal Compliances:

Legal Compliances is an important factor after forming a company. If you planning to form a Public Limited company then you should be ready to comply with a long list of compliances after forming a public limited company. However, the legal compliances in the case of a private limited company are lesser in case of a private limited company. Management and Decision Making:

As the number of shareholders is less in case of a private limited company as such decision making becomes easy and smooth. However, management and decision making are difficult in case of a public limited company as a greater number of shares are to be consulted in case of decision making.

4)    Minimum Share Capital:

The investment required in the case of Public Limited Company is more. A Public Company requires a minimum share capital of Rs.5,00,000. However, in the case of Private Limited Company, the minimum share capital requirement is Rs.1,00,000. Also, note there is no such minimum requirement compulsion.

5)    Continued Existence:

Another advantage of Private Limited Company is its continued existence even after the owner dies or leaves the business. As Private Limited Company is incorporated it becomes an independent legal entity.

Ø  What are the features of the Private Limited Company?

Following are the features of a private limited company:

1) Members: To form a private limited company minimum of 2 members and a maximum of 200 members as per the provisions of Companies Act,2013.

2) Limited Liability: The liability of the members is limited to the number of shares held by them. For example, if the company faces any losses under any circumstances the shareholders are liable only to the shares held by them. The personal assets owned by the shareholders are not at risk.

3) Perpetual Succession: The company exists in the eyes of the law even in case of death, insolvency or bankruptcy of any of its members. This means the life of the company keeps on existing forever.

4) Register of Members: There is no compulsion for the private limited company to maintain the register of members as required by a public limited company.

5) Directors Requirement: Required of Directors in the case of a Private Limited company is only 2. With a minimum of 2 directors, a company can carry on its operations.

6) Paid-up Capital: A Private Limited Company must have a minimum capital of rupees one lakh or such higher amount prescribed as a time to time. However, as per the recent amendment, there is no such minimum capital requirement.

7) Prospectus: Prospectus is the detailed statement of the affairs of the company which is issued for the public. However, in the case of a private limited company, there is no such need to issue prospectus.

8) Minimum Subscription: It is the amount received by the company which is 90% of the shares issued within a certain period of time. In case the company is not able to receive 90% of the amount it shall be able to commence its business. However, there is no such restriction in the case of a private limited company, they can start the business as soon as the company is formed.

9) Name: The private limited company must use the word “PRIVATE LIMITED COMPANY” at the end.

Ø  What is the process to be followed by forming a Private Limited Company?

The following steps are to be followed in case of forming a private limited company:

1)    Name Approval:

The first step is to file the name application through RUN Application on the MCA website www.mca.gov.in. In the name application, two names can be provided. The name selected should be unique. After name application is filed mostly name is approved within 2 business days. However, if there is any query an opportunity is given to resubmit the application with 2 more names.

2)    Digital Signature:

After the name approval is obtained the incorporation documents are to be filed with Digital Signature. Digital Signature must be compulsorily obtained for the proposed directors of the company. DSC is not required in filing the RUN application.

3)    Filing of Incorporation Documents:

After obtaining the digital signature the incorporation form in Spice Form along with linked forms Spice MOA and Spice AOA have to be filed within 20 days. In case of any query, the form comes for resubmission which is to be resubmitted within the prescribed time.

4)    Private limited Incorporation:

After submission of the required form, Certificate of Incorporation will be received along with PAN and TAN will be received within 3 business days.

Ø  What documents are required for forming a Private Limited Company?

To start with the process of registering a company the following documents are required:

Directors and Shareholders documents:

a)    Passport size photograph

b)    Pan Card

c)    Identity Proof (Any 1)

(i)  Passport

(ii) Aadhar Card

(iii)          Driving License

(iv)          Voter ID

d)    Proof of Address (Any 1):

(i) Bank Statement with the latest transactions

(i)  Electricity Bill

e)    Registered Office Proof (Any 1):

(i)Electricity Bill

(ii) Rent Agreement

(iii)NOC from the owner

Ø  FAQ’s on Private Limited Company:

1)    What is a Private Limited Company?

Private Limited company is a type of company which offers limited liability with restrictions on ownership. As per the definition, the minimum number of members to start the private limited company is 2 with a maximum of 200 members. A Company is considered a separate legal entity having perpetual succession, with the liability of shareholders limited to the capital being contributed by them.

2)    Who can register a private limited company in India?

The main criteria to form a private limited company is the requirement of 2 shareholders. Thus, any two individuals with valid ID and address proof can form a private limited company in India.

3)    How much time does it take to form a private limited company?

After verification of the documents and filing of the application, it usually takes 10 working days to form a private limited company.

4)    Can a Private Limited company trade in shares?

No, A Private Limited company cannot trade in shares as it is a privately held company.

5)    How many directors are required in a private limited company?

A Private Limited company requires at least 2 directors to carrying on its operations

6)    Can Private limited company get Foreign Direct Investment?

Yes. Private Limited Companies are great instruments to attract venture capital and FDI in India. Private Limited Companies have a great scope for growth.

Ø  Conclusion:

Thus, after going through the entire process you must have understood the scope of forming a private limited company along with the maintenance of it.


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