As per the Company Act 2013, section 2(68), a private limited company is a company that has restrictions on the right to transfer its shares. It means shareholders who hold a part of the company in the form of shares are restricted from transferring their shares. In addition, unlike public limited companies, a private limited company cannot raise capital through the general public or send them invitations to subscribe to the company’s shares.
The Companies Amendment Act 2015, removed the provision of mandatory minimum paid-up capital requirement for Pvt ltd company in India. It allowed these companies to be incorporated without needing a specific capital amount.
The act set certain eligibility criteria that an individual must fulfill to incorporate their private limited company in India. For instance, a Pvt ltd company requires a minimum of two directors and two members. These limits can be raised to a limited extent, capping the directors at 15 and limit on number of members to 200.
The difference between a member and a director is highlighted through their varying responsibilities, ownership, and financial interests. Directors are categorized into non-executive and executive. On the other hand, a member as per the company law provisions, are subscribers to the company’s memorandum, who agree in writing to become a member, hold the company’s shares, and whose name is registered as a beneficial owner in the records of the company.
To ensure compliance with company law, one of the two directors of a private limited company must have stayed in India for a minimum of 182 days in the previous calendar year.
A private limited company is widely popular for start-ups and small businesses as well as high-investment enterprises. These companies offer reduced risk of personal liability, tax benefits, and easy accessibility of funds for growth and expansion. The following are major benefits a private limited company structure offers over other business types.
The liability of members in a private limited enterprise is limited. It means that in case the company falls into financial trouble, reaches the verge of bankruptcy, or gets involved in legal lawsuits, the personal assets of the members/ owners will not be seized to recover the losses. These individuals will be liable to pay only the specific amount that they have agreed to pay during the company’s incorporation process.
A private limited enterprise is a business structure that is distinct from its owner and has its own identity. It means that the firm can enter into contacts under its own name, hold assets, and sue or be sued in its name and not of its owner/ member.
A private limited company requires a minimum of 2 directors or a maximum of 15. Similarly, it needs to have a minimum of 2 members which can extend up to 200. The limit enables the establishment of a close-knit business structure, where control stays within a few hands, and allows companies to simplify management and enable quicker decision-making.
In the eyes of the law, a company continues to exist even when it goes through a change in management or ownership. For instance, in sole proprietorship firms, the business ceases to exist in case of its member's demise or incapacity. However, a private limited company continues to exist for an indefinite period and is not terminated by the bankruptcy, death, or departure of members, directors, or owners.
Every individual or corporation intending to incorporate a private limited company in India has to attach the term ‘private limited’ in their name. Usually, the term appears in the end, for instance ‘ABC private limited’ or ‘ABC pvt ltd’. The term must be used in all its official communications, letterheads, and during registration.
Before the 2015 amendment, a private limited company was mandated to maintain a minimum of INR 1 Lakh as paid-up share capital. However, this provision has now been removed. It has provided these types of companies the flexibility to leverage their financial resources in other productive areas and incorporate a business without a hefty initial investment.
To initiate the Pvt Ltd Company Registration in India, an applicant must prepare and submit the following documents:
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