A Guide to Start a Private Limited Company
What is a private limited company?
A private limited company is a privately held business entity held by private stakeholders. The liability arrangement, in this case, is that of limited cooperation, wherein the liability of a shareholder extends only over to the number of shares held by them. Where everyone is looking for their start-up across the globe where everyone wants to do something on their own there is a need to start a different type of registration like a sole proprietorship, limited liability company, and private limited company.
In legal terms, Section 2 (68) of the Companies Act, 2013 defines a private company as:
A company having a minimum paid-up share capital as may be advised by its articles
1. Restrict the rights to transfer its shares
2. If in case of one person Company it has a limited member of two hundred
3. any invitation to the company to the public to subscribe to any securities of the company is restricted
In this article, we will talk about different sides of a private limited company. For long-term investment, private companies gain upper hand over public companies keeping the values of their shares free and flexible.
Characteristics of a Private Limited Company
Now you know that what is a private limited company let’s see what are its qualities or characteristics:
1 Membership: Like the other companies’ a minimum of two shareholders are required to start a company, but as it is a small company a maximum of 200 members can join the company. Whit this there is a requirement of two directors to run the company.
2. Limited Liability Structure: Each member Of the private limited company has limited liability (the state of being legally responsible for something). Even in the case of loss, the shareholders need to pay by selling their assets. However, personal assets are not at risk.
3. Separate Legal Entity: if all the members of a company die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. Even if the shareholders or members don’t exist still the company will be there unless it is resolved by law.
Minimum Paid-up Capital: In the private limited company they should maintain a minimum paid-up capital of 1 lakh which can be raised as per the MCA rules.
The requirement to start a Private Limited Company
Before you start a business, every company has some requirements which are as follows:
Members and directors: As per the Companies Act 2013 it is mandatory to have a minimum of 2 and a maximum of 200 members to start or register a company. The directors should meet the following condition.
The Ministery of a corporate affair has made it mandatory for each director to have a DIN (Director Identification Number).
Either member of the company must be a resident of India for the last 182 days i.e., more than 5 months.
Name of the company:
While choosing a name for a company show keep in mind that
- Main name
- Activity to be carried out
- Mention ‘Private Limited Company at the end.
It is not always necessary that the name of the business owner which he is looking for will be available, as no two companies can have the same name. so you have to give 5 to 6 name suggestions at the time of registration.
Registered office address:
After the company is registered, they need to provide or register the company’s address with the registrar. In the office where all the company affairs are conducted and all the documents are Placed.
Obtaining other Documents: Every company should have a digital signature certificate to verify the authenticity of the documents. In a company, there must secretory, charted accountant, and cost accountant is necessary to handle the other company affairs.
Advantages Of A Private Limited Company
Limited liability means members of a company are not at risk of losing their assets, and if the company fails the shareholders are liable to sell their assets for payment. Only with two shareholders, you can start a company and not as other company like seven shareholders. Ownership means the owners can transfer or sell their shares as they are the owners of the company. uninterrupted existence means a company can also run after the death or departure of any member until it is legally closed.
Disadvantages of a Private Limited Company
The only disadvantage of a private limited company is to shut it down as it gets too complicated to shut down with so many formalities.
ID Proof, address proof, residence proof, notarised rental agreement NOC, and a copy of the sale deed and property deed are the required documents for a private limited company.
How to register a private limited company?
After you register a company following are the steps to follow
- #1: Apply for DSC (Digital Signature Certificate)
- #2: Apply for the DIN (Director Identification Number)
- #3: Apply for the name availability
- #4: File the EMOA and EAOA to register the private limited company
- #5: Apply for the PAN and TAN of the company
- #6: Certificate of incorporation will be issued by ROC with PAN and TAN
- #7: Open a current bank account under the company name
With all this work done you are ready to set up your own company and make the best choice for smooth growth of the company.
Frequently Asked Questions
1.What are the disadvantages of a private company?
It restricts the transferring of shares, there is a limit to the number of shareholders.
2. Is a private company better than public?
Private companies have an upper position over public companies in terms of long-term investment strategies, freedom, and flexibility, that’s why the private company is better.
3. How many people can form a private company?
A minimum of 2 directors and two members can form a private company and a maximum of 50 to 200 members.
4. How much does it cost to form a private limited company?
Depending upon the number of members, Directors the authorized share capital, and professional fees the cost of registering a private company is from INR6000 to INR 30,000.
5. What is compulsory for a private limited company?
Holding an annual general meeting every 6 months closing their financial year is compulsory under section 134.
6. What are the rules for a Private Limited Company?
The private company must have a minimum of 2 members and a maximum of 200 members and 2 directors.