PRIVATE LIMITED COMPANIES: THINGS YOU MUST KNOW

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The growth of private limited companies could be due to the expansion of the global startup scene. We have all witnessed increasing numbers of people adjusting to established methods and operating their businesses. Thus, if you're looking for an efficient and secure structure for your company, then Private Limited is the most suitable option. It is easy to incorporate and register Pvt ltd company online in an incredibly short time with minimal documents and a minimal quantity of promoters.

WHAT IS A  PRIVATE LIMITED COMPANY?

A private limited company is a typical business structure that is restricted to a maximum of 200 shareholders and doesn't publicly trade shares. Therefore, a private limited company is limited by shares or by guarantees through its members. Such companies are controlled by non-governmental organizations or a very small number of members or shareholders of a business. Contrary to public companies, private companies cannot issue shares or debentures for the public at large since shares of these companies aren't traded on the stock exchange.

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."
This definition was previously based on the minimum paid-up capital for shares of Rs. 1 lakh for privately owned businesses; however, an amendment in 2005 relaxed the obligation. Private companies are now able to have a minimum capital of any amount.

WHAT ARE THE REQUIREMENTS FOR THE FORMATION OF PRIVATE COMPANIES?

  • A minimum of 2 directors who are adults are required.
  • One of the directors of a Private Limited Company must be an Indian Citizen and Indian Resident.
  • Other Director(s) could be the Foreign Nationals.
  • Two Shareholders are also required for the private company, and the shareholders can be natural persons or artificial legal entities.
  • The Memorandum of the company must contain its name, the title of the firm, which must include "Private Limited" in the title, its registered address, the purpose and objects, and the liability limits of its members. The Memorandum should also include details of the subscribers.

WHAT ARE THE CHARACTERISTICS OF A PRIVATE LIMITED COMPANY?

  • Members

For private limited company registration in India, it is necessary to have a minimum of two members. There can be a maximum of 200 members according to the Companies Act, 2013.

  • Limited Liability

The responsibility of each shareholder is limited. This means that when a business suffers a loss under any circumstance, shareholders of the company are bound to sell their assets to repay the debt. However, the individual assets of shareholders aren't at risk.

  • Perpetual succession

The term private limited refers to a Private Limited Company with 'Perpetual Succession.' This means it will have an ongoing or continuous existence until its legal dissolution. The company continues to exist under the law regardless of insolvency, death, or the bankruptcy of any of its members. This results in the continuous succession of the firm, and the company's existence will continue to exist for the rest of the time.

  • Minimum subscription

The amount received by the business represents 90% of the shares that are issued during a specific amount of time. If the business isn't capable of receiving 90% of the total amount, the company cannot continue the business. If it is a private limited company, shares can be allocated to the general public without an amount that is less than the required subscription.
Restricted Share transferability
Private companies cannot freely transfer their shares public, just like public companies, which is why stock exchanges don't include private companies.

  • Number of directors

In terms of directors, private companies must have two directors. With two directors, a private business can start operations.

  • Index of members

A private business has advantages over a public company because they don't need to maintain an index of its members. In contrast, the public company must keep the members' index.

  • Prospectus

A prospectus is a complete account of a company's business released by a business to its general public. In the case of a private-liability company, there is no need for a prospectus since, in this case, the public is not invited to join the shares of the business.
Name
It is a requirement for all private companies to include the words "private limited" in the company's name.

  • Fund Raising

A Private Limited Company in India can raise money via Venture Capitalists or Angel investors.

  • FDI Allowed

When it comes to a Private Limited Company, 100 percent Foreign Direct Investment is allowed, which means that any foreign entity or individual from another country can directly invest in the company. 

WHAT ARE THE TYPES OF PRIVATE LIMITED COMPANY?

There are two types of private limited companies:
A private limited company (PLC) is a business that is restricted by shares or through a guarantee.

  • Private company limited by shares:

In this, the shareholders control the company. The liability of shareholders is limited by the value of the shares that were issued to them.

  • Private limited company by guarantee.

When a private limited company is limited by guarantee, it has members who serve as grants. The members contribute a set amount to aid the business in a crisis situation.

WHAT PRIVILEGES ARE GIVEN TO PRIVATE COMPANIES?
The Companies Act provides certain rights and exemptions for private businesses that public companies don't have. These privileges give them more freedom to conduct their business. We have summed up a few of them below:

  • Private limited companies are not required to write an annual report for the general meeting.
  • Only two directors are required.
  • There is no need to choose independent directors.
  • They may decide on additional grounds for exclusion of directors as well as the holidays of their offices.
  • They may pay more to their directors than other types of firms.
  • Private limited companies also offer greater tax-deductible allowances and redeemable expenses against profits.

HOW TO REGISTER PRIVATE LIMITED COMPANY ONLINE?

Today, the registration of private limited companies and other filings for regulatory purposes is completely electronic. The documents are electronically filed on the MCA website and are processed by the Central Registration Center (CRC). After completing all the requirements of the pvt ltd registration online, the Registrar of Companies issues a digitally signed Certificate of Incorporation (COI). All parties may check the electronic certificate issued by the Ministry through the MCA website.

Documents Required

Have a look at the documents required below:

  • Pan Card (For Indian Nationals);
  • Passport (For Foreign Nationals).
  • Voter ID;
  • Driving License;
  • Passport;
  • Recent Bank Statement (Not longer than two months)
  • Electricity Bill, Water Bill or Gas Bill.

In case the property belongs to Director, Shareholder, or any other associated entities, the following documents must be submitted:

  • The most recent electric Bill with the Director's name Shareholder or any other entity related to them;
  • NOC (No-Objection Certificate).

And when the property is on rent:

  • Rent Agreement
  • The most recent electricity bill on behalf of the owner, or
  • NOC (No-Objection Certificate).

Procedure Involved

The procedure includes the following :

  • Digital Signature Certificate

The initial step is to obtain the DSCs of all those involved in establishing a private firm in India. The requirement for DSCs is a result of the requirement of the Authority to fill online forms on the MCA's website. Certifying Authority grants the Digital Signature Certificate or DSCs in a symbolic manner that can be used for two years.

  • Approval of Name

The applicant must provide at least three names that talk about the business. Once the name is approved, the application must be submitted on Form SPICE-Part A. The form is a successor of the previous Form RUN and allows applying for two names.

  • Drafting of MOA and AOA

One of the most important stages in establishing a business is the preparation of a Memorandum of Association (MOA) and Articles of Association (AOA). MOA is the governing document for the company and defines the various clauses required to establish the company's existence, such as the name clause, object clause, the registered office clause, capital clause, and subscription clause. The AOA regulates the internal rules and regulations that govern the company's operation. A well-written MOA and AOA are also essential for the GST registration for private limited companies and shall always be handled by experts.

  • SPICE-Part B

This is the form used for private limited company registration online. It will include all the information about directors, shareholders, the registered office, and any other proposed objectives of the company. The form must be filed along with all the documents required for the registration.

  • AGILE-Pro

This is the latest form used for Pvt ltd company registration online. It includes information regarding GST, ESIC, EPF registration, Professional tax registration (Only in Maharashtra), and information about opening a Bank Account.

  • INC-9

This form is a declaration from directors and shareholders about their records not being convicted and a solemn declaration concerning the authenticity of the documents and information given by them during the registration process.

  • Grant of Certificate of Incorporation

Once the Ministry approves the documents and details, it will check the truthful and accurate perception of the person's motives. And after all the verification, it will issue the Certificate of Incorporation (COI) together as PAN and TAN.

  • Applying to get an account with a PAN as well as a bank account 

Once the certificate of incorporation is received, the applicant will receive their PAN as well as TAN card in a matter of a week, after which they can present PAN, AOA, and MOA to the bank for opening an account in the bank.

FINAL THOUGHTS
Private Limited Company is the simplest and most well-known type of business registration in India which a minimum of two individuals can register. The limited liability protection of shareholders, the ability to raise equity capital, and separate legal entity status make it the best business entity for millions of medium and small-sized firms that are family-owned or professionally run. 
When you're establishing your business, it's best to look at the future to figure out what you'd like to achieve and where you'd like to take your company. If you're hoping to grow your business, establishing it as a private limited corporation will allow you to take on a larger portion of the burden. Ultimately, the company is an independent legal person, and you may even get a break.
 


Author : Sakshi

Date     : 13-Jul-2022


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