Private Limited Company

What is the meaning of a Private Limited Company?

A Private Limited Company (Pvt Ltd) is a business entity where ownership is confined to a limited number of shareholders, and its shares are not available for public trading on stock exchanges. This structure ensures that control remains within a close-knit group of individuals or entities.

Private limited company meaning as per Section 2 (68) of the Companies Act, 2013 is A Company having a minimum paid-up share capital as may be prescribed and which, by its articles

1. Restricts the right to transfer its shares

2. Except in case of One Person Company, limits the number of its members to two hundred

3. Prohibits any invitation to the public to subscribe for any securities of the company.

With the startup ecosystem booming across the country and more and more people looking to do something on their own, there is a need to be well-acquainted with different business registration types, i.e. sole proprietorship, limited liability company, and private limited company. 

Private Limited Company Examples

Here are some examples of private limited companies in India

• Google India Pvt. Ltd. A subsidiary of Google LLC

• Amazon Retail India Private Limited: An online shopping platform

• Microsoft Corporation (India) Private Limited: An information technology company with its registered office in Delhi.

Types of Private Limited Company

There are three types of Private Limited Company registrations, and entrepreneurs can choose the one that best suits the needs of their business.

1. Company Limited by Shares

• Ownership: The ownership of the company is divided into shares.
• Liability: The liability of the shareholders is limited to the amount of shares they have subscribed to.
• Capital Structure: The company raises capital by issuing shares to shareholders.
• Common Use: This is the most common type of company, suitable for businesses of all sizes.

2. Company Limited by Guarantee

• Ownership: Ownership is not based on shares but on membership.
• Liability: The liability of the members is limited to the amount they guarantee to contribute to the company in the event of winding up.
• Capital Structure: The company doesn’t raise capital through shares but relies on donations, grants, or membership fees.
• Common Use: Often used for non-profit organizations, clubs, or societies.

3. Unlimited Company

• Ownership: The ownership structure can vary.
• Liability: The liability of the members is unlimited, meaning their personal assets can be used to settle the company’s debts.
• Capital Structure: The company can raise capital through various means, including issuing shares.
• Common Use: This type of company is less common and is usually used for specific purposes, such as family businesses or holding companies.

Characteristics of a Private Limited Company

Following are some of the main advantages of a private limited company: 

1. Members

The act mandates that a minimum of two shareholders are required to start such a company, while the limit for maximum number of members is fixed at 200. 

2. Directors

The Act specifies the number of directors in a private limited company, requiring a minimum of two directors, while allowing a maximum of up to 15 directors.

3. Limited Liability Structure

In a private limited company, the liability of each member or shareholder is limited. Therefore, even in the case of loss under any circumstances, the shareholders are liable to sell their assets for repayment. However, the personal and individual assets of the shareholders are not at risk.

4. Separate Legal Entity

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

5. Minimum Paid-Up Capital

A private limited company is required to have and maintain a minimum paid-up capital of ₹1 lakh. It could go higher, as prescribed by MCA from time to time.

Requirements to Start a Private Limited Company 

Every business type has its own set of requirements before it is incorporated.

The requirements for registering this are as stated below: 

1. Members and Directors

As mentioned above, to get itself legally registered, a private limited company means it must show a minimum number of two and a maximum number of 200 members. This is a statutory requirement as mandated by the Companies Act 2013.

The directors should meet the following conditions:

• Each of the directors should have a DIN i.e. director identification number, which is given by the Ministry of Corporate Affairs
• One of the directors must be a resident of India, which means he/she should have stayed in India for not less than 182 days in the previous calendar year.

2. Name of the Company

Choosing the name of the company is often a technical task. A private limited company is required to cover three aspects while deciding a name for itself: 

1. Main name
2. Activity to be carried out
3. Mention of ‘Private Limited Company’ at the end. 

Pro tip: It is not always necessary that the name the business owner is looking for will be available, as no two companies can have the same name. Therefore, it is a requirement that at the time of registration, every company has to send 5-6 names for approval to the Registrar of Company (ROC). Moreover, the submitted names should not have a close resemblance with any other company’s name. 

3. Registered Office Address

After the company has been registered, the permanent address of its registered office must be filed with the registrar of the company. The registered office of the company is where the company’s main affairs are being conducted and where all the documents are placed.

4. Obtaining Other Documents

For electronic submission of documents, every company must obtain a digital signature certificate that is used to verify the authenticity of the documents. Moreover, in a company employing professionals (secretaries, chartered accountants, cost accountants, etc.) for varied activities, certifications by these professionals are necessary.

List of Documents Required for Private Limited Company

The documents required to incorporate a Pvt Ltd company include:

1. Identity Proof

Document verifying the identity of individuals such as PAN card and passport of Indian and foreign directors, respectively.

2. Address Proof

Document confirming the residential address of individuals such as utility bills or rental agreements.

3. Director Identification Number (DIN)

Unique identification number allotted to directors by the Ministry of Corporate Affairs.

4. Digital Signature Certificate (DSC)

Electronic signature ensuring the authenticity of documents filed electronically.

5. Memorandum of Association (MoA)

Legal document defining the company’s objectives and scope of operations.

6. Articles of Association (AoA)

Document outlining the rules and regulations governing the internal management of the company.

7. Declaration by Directors and Subscribers

Formal statement by directors and subscribers confirming compliance with legal requirements for company incorporation.

8. No Objection Certificate (NOC) from the landlord

Consent from the landlord permitting the use of premises as the company’s registered office.

9. Shareholding Pattern of the Proposed Company

Overview of the distribution of shares among shareholders in the company.

10. Proof of Registered Office Address

Documentation confirming the address where the company is registered and operates from.

How to Register Pvt Ltd Company? A Step-by-Step Guide

To register a private limited company in India the following steps are mandatory:

STEP 1: Choose a Unique Name for Your Business

• Choose a unique name that reflects your business’s identity and vision and is not in use by another company or trademarked by someone else.
• You can check for name availability on the Ministry of Corporate Affairs (MCA) official company registration website or the relevant regulatory authority in your state or union territory.

STEP 2: Obtain Digital Signatures from Authorised Agency

• Obtain Digital Signature Certificates (DSC) for your company’s proposed directors and shareholders from any authorised agency or vendor registered with the MCA or the Certifying Authority (CA) under the Information Technology Act, 2000.
• Digital signatures are essential for filing online documents with government authorities and verifying your identity and authenticity.

STEP 3: Obtain Director Identification Number (DIN) from MCA Portal

• Apply for a Director Identification Number (DIN) online through the MCA portal by filling out the form DIR-3 and uploading the required documents, such as identity proof, address proof, and photographs for each of the directors of your company.
• The MCA assigns a unique identification number to every individual who intends to be a company director.

STEP 4: Prepare Memorandum and Articles of Association 

• The MOA is a document that defines your company’s main objectives, scope, and activities whereas AOA lays down the rules and regulations for the management and administration of your company.
• You can prepare the MOA and AOA online through the MCA portal by using the SPICe+ form and the templates provided by the MCA.

STEP 5: Get Consent and Declarations 

• The directors must consent to act as directors by filling out the form DIR-2 and attaching their DSC.
• The shareholders must provide their declarations of compliance with the Companies Act, 2013 and the rules made thereunder by filling out the form INC-9 and attaching their DSC.

STEP 6: Apply for Company Name Approval 

• Submit the name approval application with the required documents to the Registrar of Companies (RoC) of the state or union territory where your company will be registered.
• You can apply for name approval online through the MCA portal using the SPICe+ form and paying the prescribed fees. 

STEP 7: File Incorporation Documents 

• You can file the incorporation documents for LLC online through the MCA portal using the SPICe+ form and pay the prescribed fees.
• You need to attach documents, including the MOA, AOA and a few more, like AGILE-PRO, INC-14, 1NC-15, etc., along with the SPICe+ form.

STEP 8: Pay Registration Fees 

• The registration fees vary depending on the amount of authorised share capital and the state or union territory where your company is registered.
• You can pay the fees online through the MCA portal using the SPICe+ form and the payment gateway.

STEP 9: Verification and Approval 

• The RoC will carefully assess the documents, and if they meet all requirements, they will issue the Certificate of Incorporation which can be downloaded from the MCA portal.
• It is a legal document that confirms the existence and registration of your company. 

STEP 10: Obtain PAN and TAN

• Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) online through the MCA portal using the AGILE-PRO form and the payment gateway.
• PAN is a 10-digit alphanumeric code used to identify your company for tax purposes.
• TAN is a 10-digit code used to deduct and collect tax at source from payments made by your company.

STEP 11: Open a Bank Account in a Company’s Name

• Open a bank account in your company’s name and deposit the minimum capital required. The minimum capital for a pvt. ltd. company is ₹1 lakh. 

STEP 12: Obtain Business Licenses 

Licencing and permit requirements can differ depending on the nature of your business.

You may need to obtain them from various authorities, such as:

• Trade licence from Municipal Corporation or Panchayat
• Environmental clearance from the Pollution Control Board
• Industrial licence from the Department of Industrial Policy and Promotion (DIPP)
• Quality certification from the Bureau of Indian Standards (BIS)
• Trademark, patent, or design registration from the Intellectual Property Office (IPO)

STEP 13: Register Your Business Under GST 

• Register for GST and comply with other tax obligations. You must register for GST if your annual turnover exceeds ₹40 lakh (₹20 lakh for special category states). 

STEP 14: Commence Business Operations

• After diligently completing the above procedure, your Private Limited Company is ready to commence its operations.