Private Limited Company

INTRODUCTION

A Private Limited is a type of a company, which is a separate legal entity formed by a small group of people who come together and to carry out a business activity, earn profit, and work toward to achieve common goals. Ownership of a Private Company is restricted to their shareholders only, and does not offer its shares to the general public.

REGULATROY FRAMEWORK

The regulatory framework for a Private Company is primarily governed by the Companies Act, 2013, which defines the provisions, rules and regulations for registration, compliance, and operations for a private company. As per Section 2(68) of the Companies Act, 2013, a private company is defined as,

“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 a One Person Company, limits the number of its members to two hundred; and
  3. Prohibits any invitation to the public to subscribe for any securities of the company.”
  • KEY CHARACTERISTICS AND STRUCTURE

 A Private Company is distinguished by several salient features.

  • Distinct Legal Entity:- A Private Company possesses an independent legal existence, distinct from its shareholders. It can own property in its own name and can be sue and be sued in its own name.
  • Limited Liability Of Member:- The liability of each member of a Private Company is limited to the amount unpaid on their shares. In the event of financial distress or insolvency, their personal assets remain shielded from corporate debts.
  • Restricted Ownership:- Shares are closely held and often non-transferable without the consent of other shareholders, preserving the intimate character of the enterprise.
  • Exclusive Membership Character:- A Private Company must consist of a minimum of two members and may have up to two hundred members. This limited circle ensure great control and intimacy among stakeholders.
  • Minimum Number Of Directors:- A Private Limited Company necessitates a minimum number of two director on its board. At least one of these directors must be an Indian citizen.
  • Prohibition On Public Fundraising:- Private Companies are restricted from inviting the public to subscribe to their securities, thus maintaining a private and exclusive capital structure.
  • Confidentiality of Business Affair:- Unlike Public Companies, Private Companies are not under an obligation to disclose its information to the non-interested people, this characteristics allow it to conduct their business operation with discretion and secrecy.
  • Use Of Word “Private Limited”:- It is a mandatory for a Private Company to use the suffix “Private Limited” or “Pvt Ltd” in its name this signifies its private character to the people at large.
  • BENEFITS OF A PRIVATE COMPANY
  • Compared to Public Companies, Private Companies deals with fewer legal formalities and less Government oversight, making operations simpler and less costly.
  • Faster and flexible decision making, as Private Companies are not bound by heavy layers of approvals.
  • Privacy of financial information.
  • More personalized relationships with the Investors.
  • Stronger internal management, as management decisions in private company are usually made by the owners.
  • Limited Liability protection for shareholders.
  • Ease of funding .
  • HOW TO FORM A PRIVATE COMPANY?

Steps to be followed for formation of a company:

  • Obtain DSC..
  • Draft key documents such as MOA and AOA for incorporation.
  • Apply for company name reservation through the form SPICe+ PART A.
  • Once name is approved, file SPICe+ Part B Form, which includes;
  • Capital details;
  • Registered Office details;
  • Director and Shareholder details;
  • Stamp Duty calculation;
  • Apply for PAN and TAN;
  • File other relevant forms (AGILE PRO, e-MOA, e-AOA, INC-9).
  • Verification and Approval.
  • Obtain Certificate of Incorporation.
  • DOCUMENT REQUIREMENT

The following documents are necessary for the incorporation of a Private Company:

  1. Documents required for proposed Directors and Subscribers:
  • Identity Proof – PAN/Passport/Driving license/Voter id
  • Permanent Address Proof – Aadhaar Card
  • Present Address Proof – Electricity bill//Voter id/Bank statement
  • Photograph –  Passport size photo (1)
  • Contact Details – Email and mobile number
  • Specimen Signature
  • Registered Office Address – Electricity bill /Voter id/Bank statement
  • Mail Id of proposed company