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Private Limited Company: A Complete Guide
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A private company is one that's privately owned, limiting ownership to a select group. Shares aren't publicly traded; ownership is usually restricted to founders, employees, or private investors.
The full form of "Ltd" is "Limited.
The three types of Private Limited Companies
A single person can register a Private Limited Company under the Companies Act 2013,
Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.
The private limited company is a popular and flexible organisational form in businesses. It is a separate legal entity from its shareholders. It establishes a balanced liability protection with operational freedom. It is a non-governmental form of organisation.
Whether you are an ambitious entrepreneur looking for the ideal business structure or someone interested in learning about the complexities of the corporate world, this guide will help you understand private limited companies. Keep reading to know more.
What is a Private Limited Company?
A private limited company, also known as Pvt Ltd company, is an organisation that limits the owners' liability and restricts the ability to transfer its shares. The maximum number of shareholders is 50. A private limited company is registered under the Companies Act 2013.
Private limited companies are popular among small and medium-sized businesses (SMEs) due to their flexibility, limited liability protection, and simplicity of ownership control.
Private limited companies have an advantage over public companies in terms of long-term investment, keeping data confidential, operational independence, and flexibility.
Types of Private Limited Company
Depending on the needs of the business, entrepreneurs can choose from the three types of Private Limited Companies:
Company limited by shares
A company limited by shares is a legal entity independent of its directors and shareholders. It can make contracts as an organisation and own assets in its name since it is a legal entity that can exist independently.
The word ‘limited’ relates to the shareholders' limited obligation. They are solely liable for any company responsibilities according to the value of their shares in that firm. No personal assets are at risk.
Company limited by guarantee
A company limited by guarantee has no shareholders or share capital. It is backed by guarantors who agree to pay a fixed amount towards the company's debts if required.
Profits are typically not distributed to guarantors since they are reinvested in the firm to assist and promote the company's non-profit aims.
Unlimited company
Section 2(92) of the Companies Act of 2013 defines an unlimited company as one with unlimited shareholders' liability.
Unlimited companies have no restrictions on their liabilities. As a result, the company can utilise all of its assets to pay down its obligations while dissolving.
Requirements to Start a Private Limited Company
The minimal criteria for company registration in India are the parameters that must be met before establishing a private limited company. An overview of the requirements is provided below:
Name of the company
Choose an original and legally appropriate name for your firm. Verify that the chosen name fulfils the naming requirements. If the name is accepted, it will be reserved for 20 days, during which the company must be established legally.
Shareholders and directors
A private limited company requires two shareholders, at the very least. The early shareholders of a company are collectively known as promoters. The promoters have complete control over the ownership ratio.
At least two directors are necessary. They must qualify under Section 164 of the Companies Act.
Registered office address
A registered Office is where a company keeps its official documents and accounts. Under Section 12 of the Companies Act of 2013, companies must always maintain a registered office.
Digital signature certificates
The application process for company incorporation is entirely digital. To complete it, fill out a form and submit it online with the relevant documents. A digital signature is the computerised version of a physical signature but is encrypted for further protection, making it irreversible and unique.
Advantages of Private Limited Company
Private limited companies have various benefits, making them a prevalent option for business owners. Here are some of the advantages:
List of Documents Required for Private Limited Company
A private limited company's operations rely heavily on documentation. Various legal and financial documents are necessary to manage the organisation. Here are the required documents for a private limited company (Only indicative):
Private Limited Company Registration Process in India -Step-by-Step Guide
Registering a private limited company in India involves some steps and compliance with the Ministry of Corporate Affairs (MCA) regulations. Here is a general guide to registering a private limited business in India:
Digital signature certificate (DSC) and Director identification number (DIN)
Obtain a DSC for at least one director. It is crucial for filing registration documents. Private agencies authorised by the Controller of Certification Agencies can provide it.
Apply for DIN for each prospective director. To obtain it, you can submit Form DIR-3 on the MCA website.
Reserve the company’s name
To reserve its name, the company must submit two potential names in Part A of the SPICe+ form. It is required because if the business name is identical to that of an existing/registered company, the SPICe+ form will be rejected.
Prepare certificate of incorporation
Submit the incorporation documents, which include the MOA, AOA, and other relevant forms. The Certificate of Incorporation is issued with the PAN and TAN assigned by the Income Tax Department. The applicant will also receive an email with a Certificate of Incorporation attached and their PAN and TAN.
A private limited company is a versatile and popular organisational form that provides entrepreneurs with limited liability, operational independence, and expansion opportunities. Understanding the formation process, benefits, and operating considerations can help determine whether a private limited company is the right solution for your business growth.
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