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What is a Private Limited Company? How to Register It?

What is a Private Limited Company?

Section 2(68) of the Companies Act, 2013 defines as:

“A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,-

  • Restricts the right to transfer its share;
  • Except in the case of One Person Company, limits the number of its members to two hundred;
  • Prohibits any invitation to the company.”

COMMENT

Private Limited Company is a company which is owned by private members. Members of Private Limited Company are known as shareholders. The Minimum required the member to set-up a company is two and the limitation of members is two hundred. The Head of the company is restricted to give the share of the shareholder.

Characteristics of a Private Limited Company

There are following characteristics of a Private Limited Company is-

  • Members– For set up of a company minimum 2 members are required and exceed up to 200 members.
  • Limited liability structure– In Private Limited Company the liability of a member is limited. So in case of loss of the company each and every member are liable for repayment anyhow.
  • Separate legal entity– A Private Limited Company is a separate legal entity and it continues for a long period of time without stopping.
  • Minimum paid-up capital– A Private Limited Company requires minimum maintenance paid-up capital of Rs. 1 lakh. It goes up according to the Ministry of Corporate Affairs (MCA) from time to time.

Types of Private Limited Company

There are following types of Private Limited Companies-

  • Company based on capital– Any Private Limited Company which is registered with or without the capital share in the company. This type of company is based on capital which is provided by the Memorandum of Association (MoA) of the company.
  • Company based on liability– In private companies, the share of each member are fixed at the time of joining the company. If in case members join without shareholding, then the agreed amount of liability according to the Memorandum of Association is provided to the members of the company.
  • One Person Company– This type of company is commonly known as OPC. This type of company is registered with only one shareholder and he is not bounded to share his ownership right.[1]
  • Company based on guarantee– In this type of company, the limitation of every member is fixed and they are held liable only for that must amount. He cannot be held liable for the amount which exceeds his guarantee. This type of company is considered as the best type of company because it requires a minimum amount of funds.

Documents required for the setup of Private Limited Company

Some documents are required to set up the Private Limited Company

  • ID proof– For set up of the private Limited Company ID proof is one of the most important documents. PAN card and passport of India or foreign is required for the ID proof.
  • Address proof– For set up of the private Limited Company address proof is also an important document. Ration card or Aadhar card or driving license or voter ID card is required for address proof.
  • Residential proof– For set up of the private Limited Company residential proof is also an important document. Bank statement is required for residential proof.
  • Rental agreement– Rental agreement is required if the company is set up on the rented property.
  • No Objection Certificate– No rental certificate is required from the rental property owner. So in the future, no objection is created from the side of the owner of the property.
  • Photographs– Photographs of all the shareholders is required.

Other requirements to start Private Limited Company

  • Shareholders and director– For starting Private Limited Company minimum 2 members are required and one of them is the director or head of the company.
  • Name of the company– A Private limited Company requires three main aspects for deciding the name of the company-
  1. Main name,
  2. Activity to be carried,
  • Mention of “Private Limited Company” at the end of the company name.
  • Registered office address– after registration of the company, the permanent address of the company’s office must be filled by the registrar. The registered office of the company is where all the main affairs are conducted and all the important documents are placed.
  • Age– Minimum age of the shareholders and the director should be 21.

How to register a Private Limited Company?

There are some following steps to register a Private Limited Company-

  1. Apply for the digital signature certificate (DSC).
  2. Apply for director identification number (DIN).
  • Apply for the company name.
  1. File the Electronic Memorandum of Association (EMoA) and electronic Articles of Association (EAOA) to register the Private Limited Company.
  2. Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
  3. Certificate of incorporation will be issued by Registrar of Companies (ROC) with Permanent Account Number (PAN) AND Tax Deduction and Collection Account Number (TAN).
  • Open a current bank account in any bank on the name of the company.[2]

Advantages and disadvantages of Private Limited Company

Advantages of Private Limited Company

  • Limited liability– In Private Limited Company every member share is fixed and they are held liable only for their own share.
  • Perpetual succession– Private Limited companies never die, it will be wounded up according to law. In this company member of a company may change according to time but it shall not affect its continuity.
  • Raising capital– in this type of company, investors sell their shares in your limited company to help invest and grow the business.
  • Protected business name– All Private Limited Company has its unique name and no other company copy the name of the company which is registered previously.
  • Less number of shareholders– In Private Limited Company only 2 members are required for the operation of the company.

Disadvantages of the Private Limited Company

  • Time-consuming– In Private Limited Companies, there are so many formalities at the time of wound up of the company which is too complicated and time taking.
  • Getting payment– In a Private Limited Company, the shareholders cannot remove money from a company. The owner of the company gives everyone’s share as a salary.

[1] What is a Private Limited Company? : available at// www.legalwiz.in (Visited on June 6, 2020).

[2] Frequently asked question: available at // www.legalraasta.com (Visited on June 7, 2020).

This Article is Authored by Shruti Tripathi, Second Year, B.A.LLB, Student of JEMTEC, School of Law, Greater Noida.

Also Read – How To Incorporate A Public Limited Company?

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