A private limited company is a privately held corporate entity that is owned by private investors. In this scenario, the liability arrangement is that of a limited partnership, in which a shareholder’s liability is limited to the number of shares held by them.
With the startup ecosystem thriving across the country and more and more people wishing to strike out on their own, it’s important to understand the various business registration forms, such as sole proprietorship, limited liability company, and private limited company.
In legal terms,Section 2 (68) of the Companies Act, 2013 defines a private company as:
“A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; (iii) prohibits any invitation to the public to subscribe for any securities of the company.”
Characteristics
Membership
A minimum of two shareholders are necessary to create such a corporation, as is the case with any other company. However, because it is still a minor business, there is a maximum cap on the number of members set at 200. The corporation must also have two directors in order to function.
Structure of limited liability
Each member or shareholder’s responsibility in a private limited corporation is limited. As a result, even in the event of a loss under any conditions, the shareholders are obligated to sell their own assets to make up the difference. However, the stockholders’ personal and individual assets are not jeopardised.
Separate legal entity
This is a separate legal entity that exists in perpetuity. This means that even if all of the members die or the firm becomes insolvent or bankrupt, the company is still legal. Unless dissolved by resolution, the company’s life will be permanent, unaffected by the lives of its shareholders or members.
The minimum paid-up capital
A minimum paid-up capital of Rs. 1 lakh is required for a private limited company. It could get higher as MCA prescribes from time to time.
Requirements
Each form of business has its own set of requirements before it may be incorporated. The following are the conditions for registering this:
Members and directors
As previously stated, a private limited corporation must have a minimum of two and a maximum of 200 members in order to be lawfully registered. This is a legal requirement mandated by the Companies Act of 2013.
The directors must meet the following requirements:
- Each director must have a DIN, or director identification number, issued by the Ministry of Corporate Affairs.
- One of the directors must be a resident of India, which means he or she must have spent at least 182 days in India in the preceding calendar year.
Company name
Choosing a company name is frequently a technical task. When choosing a name for a private limited business, three factors must be considered:
- Main name
- Activity to be undertaken
- Mention of ‘Private Limited Company at the end
Registered office address
After the company has been registered, the permanent address of its registered office must be recorded with the company’s registrar. The registered office of the company is where the majority of the firm’s business is conducted and where all records are kept.
Obtaining other documents
In order to submit documents electronically, each organisation must receive a digital signature certificate, which is required to authenticate the authenticity of the documents. Furthermore, in a corporation that employs specialists (secretaries, chartered accountants, cost accountants, and so on) for a variety of tasks, certification by these professionals is required.
