Companies Act 2013 passed by the Parliament in August 2013 consolidates and amends the law related to corporate affairs or simply companies. A Pvt Ltd company which can have a minimum of two members and can go as far as to two hundred members have limited liability of its members but has many similar characteristics as of a Partnership firm. A Pvt Ltd Company must have a minimum of two directors and a maximum of fifteen directors. A minimum of two shareholders is required for legal registration of a Pvt Ltd company. A total of two hundred shareholders are acceptable in any Private Limited Company but not more than that. The company lies somewhere between a partnership firm and a widely owned Public company. Private Limited Company provides certain benefits including stability however it has its own disadvantages too like selling of shares which must first be offered to the members of the company itself.
According to Section 2, Clause 68 of Companies Act 2013,
“Private Company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,—
- Restricts the right to transfer its shares;
- Except in a case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that—
(A) persons who are in the employment of the company; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company.”
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members;
- Prohibits any invitation to the public to subscribe for any securities of the company.”
This definition clearly states that a maximum number of members that Private Limited Company can accommodate is two hundred which previously was just fifty. Also, the same Act mentions that financial year for balance sheet will be Thirty-first of March for all the companies.
Section 11: Comments on the commencement of Business which clearly states that before starting to function the company has to file with ROC a statement that minimum paid-up capital (one lakh for the Private company) has been brought in while Section 73 prohibits Pvt Ltd company to take any unsecured loans or deposits from relatives of Directors.
Section 103 Companies including Private limited companies with a paid-up share capital of or more than Rupees five crores are required to have full-time CEO/MD/Manager/WTD, Company Secretary and CFO (Chief Financial Offer).
Section 185 then states that private companies are prohibited to give any kind of loan, advances, security or guarantee to the directors while Section 149 states that one of the Director must have lived in India for a minimum period of 182 days during the previous year calendar and he should also give his consent within 30 days of his appointment with the registrar as stated in Section 152.
Section 162 of the same act states that in a general meeting of the company, the appointment of two or more persons as directors by a single resolution should not be moved unless a proposal has been agreed upon before without a single vote against it.
A CSR Committee consisting of at least three directors out of which one must be independent and spend two percent of the net profit on CSR activities is now mandatory according to Section 135. Companies having subsidiaries (Associates or Joint Ventures) need to prepare consolidated accounts as stated in Section 129.
Section 139 clearly states that appointment of Auditor will be on five-year terms and should be a subject to ratification every year and according to Section 141 only Twenty auditors can be appointed by a Private Limited company or any company for that matter and a company cannot appoint a person as an auditor if he already is an auditor to twenty different companies also stated in the very same section.
Section 92 states that Private company if small should have one CS if not then one director other than that if it’s not small then CS and Director or PCS and Director.
Authentication of financial statements of the company should be done by CEO or Chairperson according to Section 134 and a Chairperson can also sign a director’s report as stated in the very same section.
These are some of the important rules and regulations required to be fulfilled for Pvt Ltd Company registration. These Clauses can sometimes be difficult to understand or implement, in such a scenario you are advised to either read all the regulations carefully or maybe seek legal advice so as to avoid any lawsuits in future. Each Section has to be given clear attention and should be considered important. These rules are to be followed strictly because there is almost no flexibility when it comes to this act. MCA or Ministry Of Corporate Affairs have originally handled this Act till now and is strict about its implementation.
Pvt Ltd Company’s Director
The private Limited company is one of the most common types of a company in India, requires a minimum of two directors, two members, and two shareholders to register itself legally. A proper registration is followed. Certain benefits and tax exemptions are given. Limited Liabilities are given to the shareholders. Certain documents are required. The director of a private limited company plays an important role in the working of the company. A maximum of fifteen directors is allowed in a company as per the Companies Act, 2013 laid out by MCA or Ministry Of Corporate Affairs. Director of a private limited company enjoys certain benefits, though he is expected to perform particular duties. They somehow describe the whole company or better represent the whole company. Described below in detail is who a director is and what is his role in a private limited company.
Requirements to become a Director
In order to become a director, you need to be over eighteen years of age. There is, however, no issues regarding citizenship of a director. A foreign Entrepreneur can very well become a director of an Indian Pvt Limited Company. However, he should have lived in India for a period of one hundred and eighty-two days prior to his appointment. But you do need a DIN that is a Director Identification Number. It is generally obtained at the time of filing of the company. It is a one-time Number that is it never expires. Also, a DSC or a Digital Signature Certificate is mandatory. The director cannot have a criminal record. He shouldn’t have been imprisoned anytime before his appointment as a director.
Responsibilities of a Director
A director is a person who is in charge of the affairs of a company. It can be related to anything and everything. A director is appointed through the voting procedure by the shareholders of the company. Since there can be up to two hundred shareholders; voting procedure seems to be the fairest option of all. A director can be a shareholder as well as a member at the very same time. It is generally considered as an advantage of Private Limited Company. A director is responsible for the smooth working of a company. However, technically speaking his death or health does not hinder the working of the company.
Types of Director in Pvt Ltd company
- A managing director;
- An Executive director (the whole-time director);
- An Ordinary director;
- A nominee director;
- An Alternate director;
- A Professional director.
Characteristics of Director’s
- A managing director can be considered as the man in power or the man answerable to the main workings of the company. He is there at the time of initiation of the company and holds the substantial powers.
- An executive director as the name suggests is a full-time employee/director. He is entrusted with the daily reports and working with the company. The one to whom you go to-in-the-immediate-requirement.
- An ordinary director is one who takes part in the working of the company. Though, he is not as effective as the other two mentioned before. He attends the board meetings and gives his opinion.
- An additional director is someone who is appointed on a temporary basis. He is responsible for handling company’s issues by staying in the company in the real-time.
- A professional director is someone who is not interested in the working of the company. He is more of an advice giver. He has his technical knowledge and professional qualifications.
- A nominee director is basically a representative of the investors. He is present in the board meetings to keep a check on the workings of the company. After all, it’s his money or his organization’s money at stake.