As the start-up ecosystem is flourishing in the country and more and more people want to do something on their own, there is a requirement to be well-acquainted with various business registration types such as sole proprietorship, private limited company and limited liability partnership. 

Before starting your business, it is essential to check out all the pvt ltd company formation details. In this blog, we would discuss various sides of a private limited company.

Defining private limited company

A private limited company is a privately owned business entity. It is owned by private stakeholders. The liability arrangement in the private limited company is that of a limited partnership, which means the shareholders’ liability will be proportional to the number of shares held by them. The shareholders cannot be held liable beyond the value of their shares. MCA (ministry of corporate affairs) is the governing body of such a company.

Section 2(68) of the companies act, 2013 defines a private limited company as;

A company with minimal paid-up share capital as might be stated and that by its articles, i) limits the right to transfer its shares ii) except in case of OPC, restricts the number of its members to 200 iii) proscribes any invitation to the public to subscribe for any securities of the company.

Components of a private limited company

Membership – a minimum of two shareholders will be required to initiate a company. But as it remains a small entity, there is also a maximum cap on the number of members fixed at 200. Two directors also will be needed to run the company.

Limited liability structure – in such a company, each member or shareholder’s liability will be restricted. That’s why, even in case of loss under any circumstances, the shareholders will be liable to sell their assets for repayment. Nonetheless, the individual and personal assets of the shareholders will not be at risk.

Separate legal entity – it is a separate legal entity and continues in perpetual succession. It means that even if all the members die or the company becomes bankrupt or insolvent, the company still will be in existence in the eyes of the law. The company’s life will be perpetual and not affected by the lives of its members or shareholders unless dissolved way of resolution.

Minimal paid-up capital – it requires minimal paid-up capital of Rs. 1 lac. It can go even higher as well, as mentioned by the MCA from time to time.

Desideratum to initiate a private limited company

Members and directors – as stated above, to obtain itself legally registered, a private limited company should represent a minimum number of 2 and a maximum number of 200 members. It is a statutory requirement given by the companies act, 2013.

The directors are requested to meet the following conditions;

– Each director should have a DIN (director identification number) that is provided by the ministry of corporate affairs (MCA).

– One of the directors has to be an Indian resident, which means he/she should have resided in India for more than 182 days in the preceding calendar year.

Company’s name – selecting the name of the company is a technical task. a private limited company is needed to cover at least three aspects while choosing the name itself;

– Main name.

– Activity to be performed.

– Clarification of ‘private limited company at the end.

It is not always required that the name of the business you are looking for will be available. That’s why every company must have to send 5-6 names for approval to the RoC (Registrar of the company) at the time of registration. Also, the filed names should not have a close resemblance with any other name of the company.

Registered office address – once the company is registered, its registered office’s permanent address has to be submitted with the RoC. The registered office of the company is where the company’s primary affairs are being carried out and where all the documents are stored.

Acquiring the other documents – for E-submission of the documents, every company should acquire a digital signature certificate used to verify the documents’ veracity. Also, a company with employed professionals (CA, cost accountant, secretary and so forth). For various activities, certifications by these professionals are requisite.

Pros of a private limited company

Limited liability – here, the liability will be limited, which means the company’s members will not be at risk of losing their private assets. If the company fails, the shareholders will be liable to sell their assets for repayment.

Lesser number of shareholders – unlike a public company that needs seven shareholders, a private limited company can be initiated with just two shareholders.

Proprietorship – as investors, management and founders own the company’s shares, the owners are at the liberty of transferring and selling their shares to others.

Perpetual existence – as mentioned above, the company remains a separate legal entity with a boon of perpetuity until it is dissolved legally; the company runs even after the demise or departure of any member.

Cons of a private limited company

One of the cons of a private limited company is compliance formalities for dissolving. It often ends up getting too intricated and time-consuming.

Document requirements

– ID proof, Passport of Indian and foreign directors, PAN card, respectively.

– Address proof, Aadhar card and ration card or driver’s license or voter ID.

– Residential proof, the electricity bill of the premise or bank statement.

– NOC from the establishment owner.

– Notarized rental agreement.

– Sale deed’s copy and property deed’s copy (for an owned property).

How one can register a private limited company

Step 1 – apply for DSC.

Step 2 – apply for DIN.

Step 3 – apply for the name.

Step 4 – submit the EMoa and EAOA to register the private limited company.

Step 5 – apply for PAN and TAN of the company.

Step 6 – incorporation certificate will be issued by RoC with TAN and PAN.

Step 7 – create a current bank account on the company name.

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