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Private Limited Company 

A private limited company is a type of business entity where ownership is limited to a small group of shareholders, and its shares cannot be publicly traded. Shareholder liability is confined to their investment in the company, and the company can have up to 200 shareholders. The company’s registration and operations are regulated by the Register of Companies (ROC). For incorporation, directors must submit their Director Identification Number (DIN) and Digital Signature Certificate (DSC). Additionally, documents such as the Memorandum of Association (MoA) and Articles of Association (AoA) must be submitted through the MCA portal. After registration, the Ministry of Corporate Affairs (MCA) issues an incorporation certificate and displays the company’s details on its website.

Advantages of Registering as a Private Limited Company

Flexible Management Structure One of the key benefits of a private limited company is its flexible management structure, allowing for efficient and adaptable governance. Perpetual Succession A private limited company enjoys perpetual succession, meaning it continues to exist indefinitely until it is legally dissolved, ensuring stability and continuity. Additional Benefits Here are some other advantages of registering as a private limited company:

Private Limited Company Registration in India

Overview

Establishing a business in India often involves selecting a private limited company as the preferred structure. This option provides shareholders with limited liability protection while imposing specific ownership restrictions. Unlike LLPs, where partners manage the business, private limited companies distinguish between directors and shareholders.

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At SPJ Infosystem, we offer an economical service to facilitate smooth private limited company registration in India. We handle all legal formalities, ensuring full compliance with the Ministry of Corporate Affairs (MCA) regulations.

What is a Private Limited Company?

In India, a private limited company is a privately held entity with limited liability, making it one of the most popular business structures due to its numerous advantages. These include limited liability protection, ease of formation and maintenance, and its status as a distinct legal entity. A private limited company requires at least two members and two directors to operate. Here are its key characteristics:

Limited Liability Protection

Shareholders are only liable to the extent of their shareholding, safeguarding their personal assets even if the company faces financial difficulties.

Separate Legal Entity

A private company has its own legal identity, allowing it to own property, enter contracts, and initiate or defend legal actions under its own name.

Minimum Shareholders and Directors

A private company must have at least two shareholders and cannot exceed 200. It also requires at least two directors, with one being an Indian resident.

Minimum Share Capital

The company must have a minimum paid-up capital of Rs. 1 lakh or a higher specified amount.

Firm Name

The company’s name must end with “Private Limited.”

Restrictions on Share Transfer

Shares can only be transferred with the approval of the Board of Directors or as per the company’s Articles of Association.

Prohibition on Public Invitation

Private companies cannot invite the public to subscribe to their shares or debentures.

Compliance Requirements

Private limited companies must adhere to various legal and regulatory obligations, including maintaining financial records, holding annual general meetings, and filing annual returns with the ROC.

Types of Private Limited Companies

  1. Company Limited by Shares: Liability is limited to the nominal amount of shares.
  2. Company Limited by Guarantee: Liability is limited to the guarantee amount specified in the Memorandum of Association.
  3. Unlimited Companies: Members have unlimited personal liability for the company’s debts and liabilities but the company is still a separate legal entity.

Advantages of a Private Limited Company

Limited Liability

Shareholders’ liability is limited to their capital contribution, protecting personal assets from the company’s financial obligations.

Distinct Legal Identity

The company has an independent legal identity, enabling it to own assets, enter contracts, and engage in legal proceedings in its own name.

Continuous Existence

The company’s existence continues regardless of changes in shareholders or directors.

Ease of Funding

Raising capital is easier through share issuance to investors, venture capitalists, or angel investors.

Tax Benefits

Private limited companies may qualify for various tax benefits and exemptions.

Credibility and Trust

Using “Pvt. Ltd.” in the company name often instills more confidence among customers, suppliers, and partners.

Disadvantages of a Private Limited Company

Compliance Burden

Private companies face stringent regulatory demands, including financial reporting, filings, and audits.

Complex Setup

The process and cost for setting up and managing a private limited company are higher than simpler structures.

Share Limits

Share transfer restrictions and a maximum of 200 shareholders can limit flexibility.

Public Disclosure

Financial information is publicly viewable, impacting privacy.

Exit Complexity

Selling or leaving the company is more complicated than with other structures.

Slower Decisions

The involvement of shareholders and directors may slow down decision-making processes.

Requirements for Registering a Company in India

Directors and Members

A minimum of two directors and up to 200 members are required. Directors must have a Director Identification Number (DIN) issued by the MCA, and at least one director must be an Indian resident.

Company Name

The name should reflect the principal activity of the business.

Registered Office Address

The company must provide the permanent address of its registered office where business operations and relevant documentation are maintained.

Company Registration Process

  1. Acquire a Digital Signature Certificate (DSC) Each director and shareholder must obtain a DSC issued by the Controller of Certification Agencies (CCA).

  2. Obtain a Director Identification Number (DIN) Essential for directors and required in the registration form.

  3. Name Reservation (SPICe+ Part A) Complete the SPICe+ Part A form to secure a unique company name.

  4. Submission of Company Details (SPICe+ Part B) Provide detailed information about capital, registered office address, subscribers and directors, stamp duty, PAN and TAN applications, and necessary attachments.

  5. Preparation and Submission of Incorporation Forms (SPICe+ MOA and AOA) Draft and submit the Memorandum of Association (MOA) and Articles of Association (AOA) to the MCA for approval.

Additionally, file the AGILE-PRO-S form to register for GST, EPFO, ESIC, a bank account, and a shop and establishment license if applicable.

Certificate of Incorporation

Upon successful verification, the MCA issues the Certificate of Incorporation (COI) with the Company Identification Number (CIN), PAN, and TAN.

Document Checklist

For Indian Nationals

  • Self-attested PAN card copy
  • Passport-sized photo
  • Aadhaar Card
  • Proof of identity and address

For Foreign Nationals

  • Notarized documents
  • Passport-sized photo
  • Passport and address proof

Registered Office Documents

  • Proof of business address
  • Rent agreement (if applicable)
  • Owner’s no objection certificate

Post-Registration Compliance

Adhering to post-registration compliances is essential to streamline company operations and define the roles and responsibilities of directors and shareholders.

Register Your Company through IndiaFilings

SPJ Infosystem specializes in private limited company registration services in India, offering comprehensive guidance and support throughout the registration process. Our team of professionals provides expert consultation tailored to your specific requirements and business goals.

Choosing SPJ Infosystem ensures that your company registration process is managed professionally and effectively, allowing you to focus on your business objectives while we handle the legal requirements. Start your entrepreneurial journey with confidence by registering your company through SPJ Infosystem.

Types of Private Limited Company

  • Companies Limited by Shares: These are the most common private limited companies. They have a share capital, and the liability of shareholders is limited to the amount unpaid on their shares.
  • Private Companies Limited by Guarantee: These companies do not have share capital. Instead, members agree to contribute a specified amount to the company’s assets if the company is wound up.
  • Unlimited Companies: In these companies, there is no limit on the liability of the members, making it a less common option due to the higher risk to its members.

Post-Registration Compliances After Filing of FORM 3

Registered Office Requirement

According to Section 12(1), a company must establish a registered office within 30 days of incorporation. Additionally, PAN and TAN applications should be submitted to register the company under the Income Tax Act, of 1961. All registered private limited companies must meet the following compliance requirements as per MCA guidelines:

Initial Board Meeting

Section 173(1) of the Companies Act 2013 mandates that a registered private limited company must hold its first board of directors meeting within 30 days of incorporation.

Bank Account

Opening a current account in the company’s name for business operations is crucial. Since a company is a legal entity, financial transactions should be conducted in its name, not in the name of an individual.

Official Address

As per Section 12(1) of the Companies Registration Act of 2013, a registered business must have an official address within 30 days of incorporation. This address serves as the contact point for receiving communications from government authorities and must be reported to the registrar within the first 30 days of incorporation.

Branding and Legal Compliance

The registered company name should be displayed at all business locations. The local language should be used on billboards, and seals and letterheads should be prepared accordingly.

Auditor Appointment

The board of directors must appoint an auditor within 30 days of company registration, as required by Section 139(1).

Interest Disclosure and Statutory Compliance

During the first board meeting, all directors must declare their interests in other companies, as per Section 184 of the Companies Act of 2013. Companies are also required to maintain a statutory register at the registered office.

Share Certificate Issuance

Share certificates must be issued to shareholders within 60 days of incorporation or, in the case of additional share allotments, within 60 days of the allotment date.

Bookkeeping and Financial Reporting

Every company must maintain accurate and fair books of accounts, following the double-entry system and accrual basis of accounting, as stipulated in Section 128.

Commencement of Business Certification

A company must obtain a certificate of commencement of business within 180 days. Directors must file a declaration attesting to each subscriber’s payment of the outstanding balance on their shares.

Copyright Registration

For a private limited company, copyright registration is essential to protect original works, such as software, manuals, logos, promotional materials, and other creative content. Our team of IP lawyers can assist with copyright registration and other IP-related issues.

Professional Tax Registration

Professional tax is a state-level tax imposed on professionals and businesses in India. Employers must deduct professional tax from employees’ salaries and remit it to the state government. Tax rates vary by state. Our team of chartered accountants can assist with the registration and filing of professional tax in India.

Comparison Between Private Limited Company and Other Business Structures

Choosing the appropriate company type is critical for registration, as each type possesses distinct characteristics and offers unique advantages to its stakeholders. Below is a comprehensive overview of the various company types:

AspectProprietorshipPartnershipLLPPrivate Limited Company
RegistrationNo formal registration requiredOptional registration under the Partnership Act, 1932Registered with the Ministry of Corporate Affairs under the LLP Act, 2008Registered with the Ministry of Corporate Affairs under the Companies Act, 2013
Name of the EntityPromoter’s choice; avoid trademarked namesAvoid trademarked namesThe name has to end with ‘Limited Liability Partnership’ (LLP). Subject to approval by the Registrar.The name ends with ‘Private Limited Company’. Subject to approval by the Registrar.
Legal Status of EntityA minimum of two persons is requiredNot a separate legal entity; Promoters are personally liableSeparate legal entity; Partners not personally liable for LLP’s liabilitiesSeparate legal entity. Directors and Shareholders are not personally liable for the Company’s liabilities
Member(s) LiabilityUnlimited liability for the ProprietorUnlimited liability for the PartnersLimited liability for Partners, up to their contribution to the LLPLimited liability for Shareholders, up to their share capital
Minimum Number of MembersCan have only one person as a memberMight dissolve due to the death of a PartnerPermitted under the Automatic Approval route in most sectors for foreigners investing in Private Limited CompaniesTwo persons are required to start a PVT Limited Company
Maximum Number of MembersCan have only one person as a memberMaximum of 20 partnersUnlimited number of PartnersA minimum of two members are required
Foreign OwnershipNot allowedNot for foreignersNeed RBI and FIPB approvalA maximum of 200 shareholders or members
TransferabilityNot transferableNot transferableOwnership can be transferredOwnership can be transferred through share transfer
Existence or SurvivabilityDependent on the Proprietor’s existencePartnership profits are taxed at 30% plus surcharge and cessNot dependent on the Partners’ existence; could be dissolved voluntarily or by an Order of the Company Law BoardNot dependent on Directors or Shareholders; could be dissolved voluntarily or by Regulatory Authorities
TaxationTaxed as an individual based on total incomeA minimum of two members is requiredLLP profits taxed at 30% plus surcharge and cessPrivate Limited Company profits taxed at 30% plus surcharge and cess
Annual Statutory MeetingsNo requirementsNot requiredNo annual statutory meeting requiredBoard and General Meetings must be conducted periodically
Annual FilingsNo annual report filing requirements; file Income Tax Return based on incomeNo annual report filing requirements; file Income Tax Return for PartnershipLLP must file an Annual Statement of Accounts & Solvency and Annual Return; file an Income Tax ReturnPrivate Limited Company must file Annual Accounts and Annual Return; file Income Tax Return
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