Private Limited Company

What is Private Limited Company ?

A Private Limited Company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded. Private Limited Company is the simplest and a very popular form of Business Registration in India. It can be registered with a minimum of two people. Limited liability protection to shareholders, ability to raise equity funds, separate legal entity status make it the most recommended type of business entity for millions of small and medium-sized businesses that are family owned or professionally managed.

To register a company in India, the following are minimum requirements:
• 2 Directors – 1 Person should be an Indian National and Indian Resident
• 2 Shareholders – The Directors can be shareholders
• Registered Office in India

100% Foreign Direct Ownership (FDI) is permitted in most sectors in India and there is no restriction on foreign shareholding of a private limited company. Hence, most foreign subsidiaries are established in India as private limited company.

Capital Required to Start a Company

A company can be started in India with a very minimum amount of capital. There is no fixed amount and the shareholders of the company being incorporated can determine the capital they wish to contribute. While setting up the capital structure of the company, the following are some of the concepts to be kept in mind

Face Value of Share: The face value of a share is the price per share with which the company is incorporated. Normally, the face value of share is Rs. 1 or Rs. 10 or Rs. 100 or Rs. 1000 or Rs. 10,000.

Authorised Capital: Authorised capital is the total value of shares a company can issue to shareholders. Normally, all companies are incorporated with an authorized capital of Rs. 1 lakh or Rs. 10 lakhs. If a higher authorized capital is required, the company would be required to pay additional fees to the Ministry of Corporate Affairs. The authorised capital of a company can be increased at any time after incorporation.

Paid-up Capital: Paid-up capital of a company is the number of shares issued to shareholders for which they have paid or deposited money to the company. Paid-up capital of a company cannot be more than the authorized share capital of the company.

Advantages of Private Limited Company

• No Minimum Capital
No minimum capital is required to form a Private Limited Company. A Private Limited Company can be registered with a mere sum of Rs. 10,000 as total Authorized Share capital.

• Separate Legal Entity
A Private Limited Company is a separate legal identity in the court of the law, meaning assets and liabilities of the business are not the same as the assets and liabilities of the Directors. Both are counted as different. A Private Limited Company separates Management and Ownership and thus, managers are responsible for the company’s success and are also answerable for the company’s loss.

• Limited Liability
If the company undergoes financial distress because of whatsoever reasons, the personal assets of members will not be used to pay the debts of the Company as the liability of the person is limited.

For e.g. If a Private Limited Company takes any loan and is unable to pay off, the members are responsible to pay only that much how much they own towards their own shareholding i.e. the unpaid share value. Which means, if you have no balance payable towards the amount of shares you hold, you are not payable towards any debt payable by the company even if the debt/credit amount remains unpaid.

• Fund Raising
A Private Limited Company in India is the only form of business except Public Limited Companies that can raise funds from the Venture Capitalists or Angel investors.

• Free & Easy transfer of shares
Shares of a company limited by shares are transferable by a shareholder at any other person. The transfer is easy as compared to the transfer of an interest in a business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.

• Uninterrupted existence
A Private Limited Company has ‘Perpetual Succession’, that is continued or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death or other departure of any member but continues to be in existence irrespective of the changes in membership. ‘Perpetual Succession’ is one of the most important characteristics of a company.

• FDI Allowed
In Private Limited Company, 100% Foreign Direct Investment is allowed that means any foreign entity or foreign person can directly invest in a Private Limited Company.

• Builds Credibility
The particulars of the company are available on a public database. Which improves the credibility of the company as it makes it easy to authenticate the details.

Disadvantages of Private Limited Company

• One of the main disadvantages of a Private Limited Company is that it restricts the transfer ability of shares by its articles.
• In a Private Limited Company the number of shareholders in any case cannot exceed 50.
• Another disadvantage of Private Limited Company is that it cannot issue prospectus to public.
• In stock exchange shares cannot be quoted.

REQUIRED DOCUMENTS :

• Identity Proof
• Permanent Account Number (PAN) Card
• Aadhaar Card / Passport / Driving License / Voter Identity Card
• Passport size Photographs 3 each
• Email id & Contact Number
• Telephone Bill / Mobile Bill
• Electricity Bill / Water Bill
• Bank Statement /Bank Passbook with latest transaction (Any one of the Document not older than 2 months)