What is a Private Limited Company?
A Company is an association of persons who share common goals. Moreover, the owners of the company pool their resources to achieve their common goals. A private limited company is a closely held company with restrictions to issue shares to the public. Thus that it cannot go for an IPO or list their shares on the stock exchange for public trading of their shares.
Registration of a Pvt Ltd Company in India is regulated by the Companies Act, 2013, and administered by the Ministry of Corporate Affairs.
Definition and Conditions as per Companies Act, 2013
Private Limited Company has a minimum paid-up share capital of Rs. 100 thousand or such higher capital as may be prescribed under section 2 (68) of Companies Act, 2013; and by its Articles,-
1) restricts the right of transfer of its share;
2) except in the case of One Person Company, limits the number of its members to 200 not including:
a) persons who are employees of the company; and
b) persons, who have formerly been in the employment of the company, were members of the company and have continued to be members after the employment ceased
3) prohibits any invitation to the public to subscribe for any securities of the company.
A Private company becomes a “small company“ in the following circumstances:
- paid-up share capital not exceeding fifty lakh rupees or such higher amount as may be prescribed (not be more than five crore rupees);
- Turnover as per last profit and loss account does not exceed two crore rupees or such higher amount not being more than twenty crore rupees.
Note: None of the above is applied to a holding or subsidiary company.
A Private Company becomes a “small company” if the paid-up share capital does not exceed fifty lakh rupees and its average annual turnover during the relevant period does not exceed two crore rupees.
Incorporation of a Private Limited Company
The main steps of incorporation are discussed below:
There must be at least two Promoters and at least two Directors. Promoters may be individual or body corporate who will promote/incorporate a company and Directors should be individuals. The individuals need to apply for DIN i.e. Director Identification Number in Form DIN 1 along with the prescribed documents.
To know more about DIN read: Procedure to Obtain DIN/How to apply for DIN
Digital Signature is a must for any of the two Directors. There are a total of seven Certification Agencies authorized by the Controller of Certification Agencies to issue the Digital Signature Certificate.
To know more read: Requirement of a Digital Signature in a company
The next step involves an application to the concerned Registrar of Companies (ROC) along with the prescribed documents and fees. The promoter can apply for six company names amongst which the ROC will approve only one. If the ROC rejects all the names, the applicant has another two chances to apply the name again with the same fees he has incurred.
After the name approval, the drafting of Memorandum of Association and Article of Association are drafted by the Directors/Promoters.
To know more read: MOA and AOA, its importance for the company and its members.
After the drafting of MoA and AoA, the Director will take the Professional Service i.e. from CA/ CS/ CWA to incorporate the company. E Forms 1, 18, and 32 are to be filed, Digitally signed by any One Director followed by Digital Signatures of Professional who certify that all the documents and information is correct one. Certificate of Incorporation will be generated, once the ROC approves the documents and Forms submitted. The Directors are to get the MOA and AOA printed and to comply with all the compliance after the company registration
Documents Required for Private Limited Company Registration
Following are the documents that are generally required for Private Limited Company Registration
Copy of PAN Card of directors
Passport size photograph of directors
Copy of Aadhaar Card/ Voter identity card of directors
Copy of Rent agreement (If rented property)
Electricity/ Water bill (Business Place)
Copy of Property papers(If owned property)
Landlord NOC (Format will be provided)
Advantages of the Private Limited Company (Pvt Ltd )
There are numerous benefits of a Private Limited Company Registration as compared to other forms of companies. A private limited company is the most preferred form of business entity for startups
Many start-ups register as a ‘Private Limited Company’ as it is the most preferred form of entity for seed funding by Vc’s and investors. It is thus the most popular form of business entity in India. Read why is a Private Limited company more suitable for Startups who want to go for seed funding.
One can start the Pvt Ltd company, with a minimum of 2 members and a maximum of 200 members as per the Companies Act, 2013.
Minimum 2 directors are required for Pvt Ltd Company. Directors and the shareholders can be the same person. No mandatory qualifications are required for the appointment of directors.
For Pvt Ltd Company, share capital of only Rs 1,00,000 is needed.
The prospectus is a detailed document issued by the company which invites the public for the subscription of shares, debentures of a company. The issue of a prospectus is not required in Pvt. Ltd. Company.
Statutory meeting of the members or filling of Report to the Register of Companies is not required.
Disadvantages of the Private Limited Company
- In the Pvt Ltd Company, shares cannot be easily transferred unless other shareholders approved it.
- The public is not allowed to buy the shares of Pvt Ltd Company.
- Every private company should have to mention “Pvt. Ltd” at the end of the company name.
Compliance of a Private Limited Company
It is important to ensure timely fulfillment of legal compliances to avoid any levy of interest or penalty. Some of the common compliances of a private limited company are elaborated below:
|Appointment of Auditor||The auditor will be appointed for the 5 years and form ADT-1 will be filed for a 5-year appointment. The first Auditor shall be appointed within expiry of one month from the date of incorporation of a private limited company as given in the incorporation certificate.|
|Statutory Audit ||Every Company shall maintain its books of accounts and get the same mandatorily audited by a Chartered Accountant in Practice holding a COP at the end of every FY. The Auditor shall prepare an Audit Report annexed with Financial Statements audited by him to present it in the AGM and file it with the Registrar of Companies.|
|Filing of Annual Return (Form MGT-7)||Every Private Limited Company is required to file its Annual Return within 60 days from the date of holding the Annual General Meeting. Annual Return will be period beginning 1st April and ending 31st March i.e Financial year.|
|Form AOC-4 – Filing of FS||Every Private Limited Company shall file the financial statements namely Balance Sheet, Profit, and Loss Account annexed with Director’s Report after they are adopted by shareholders in the AGM. Filing of adopted financial statements must be done along with form AOC-4 and prescribed fees within 30 days of holding of Annual General Meeting.|
|Holding Annual General Meeting||Every Private Limited Company must hold an AGM and lay down its financial statement along with the Director’s Report before the members. Every company registered under the Companies Act, 2013 is compulsorily required to hold an AGM before the expiry of 6 months from the end of that FY.|
|Preparation of Directors’ Report||Directors’ Report will be prepared with a mention of all the information required under Section 134.|
|Change in Directors or KMP||DIR-12|
|Increase in Authorized Share capital||SH-7|
|Increase in Paid-up share capital (Issue of security)||PAS-3|
|Change in the registered office||INC-22|
|Change in secured borrowing (Creation, modification, and satisfaction of charge)||CHG-1|
|Change of name of the company||INC-24|
|Conversion of company||INC-27|
|Filing of resolution and agreements||MGT-14|
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Private Limited Companies: A path to success for startups