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What is the meaning of a Private Limited Company?
A Private Limited Company (Pvt Ltd) is a business entity where ownership is confined to a limited number of shareholders, and its shares are not available for public trading on stock exchanges. This structure ensures that control remains within a close-knit group of individuals or entities.
Private limited company meaning as per Section 2 (68) of the Companies Act, 2013 is A Company having a minimum paid-up share capital as may be prescribed and which, by its articles
1. Restricts the right to transfer its shares
2. Except in case of One Person Company, limits the number of its members to two hundred
3. Prohibits any invitation to the public to subscribe for any securities of the company.
With the startup ecosystem booming across the country and more and more people looking to do something on their own, there is a need to be well-acquainted with different business registration types, i.e. sole proprietorship, limited liability company, and private limited company.
Table of Contents
Private Limited Company Examples
Here are some examples of private limited companies in India
- Google India Pvt. Ltd. A subsidiary of Google LLC
- Amazon Retail India Private Limited: An online shopping platform
- Microsoft Corporation (India) Private Limited: An information technology company with its registered office in Delhi.
Types of Private Limited Company
There are three types of Pvt. Ltd. Company registration, and entrepreneurs can choose the one that best suits the needs of their business.
1. Company Limited by Shares
- Ownership: The ownership of the company is divided into shares.
- Liability: The liability of the shareholders is limited to the amount of shares they have subscribed to.
- Capital Structure: The company raises capital by issuing shares to shareholders.
- Common Use: This is the most common type of company, suitable for businesses of all sizes.
2. Company Limited by Guarantee
- Ownership: Ownership is not based on shares but on membership.
- Liability: The liability of the members is limited to the amount they guarantee to contribute to the company in the event of winding up.
- Capital Structure: The company doesn’t raise capital through shares but relies on donations, grants, or membership fees.
- Common Use: Often used for non-profit organizations, clubs, or societies.
3. Unlimited Company
- Ownership: The ownership structure can vary.
- Liability: The liability of the members is unlimited, meaning their personal assets can be used to settle the company’s debts.
- Capital Structure: The company can raise capital through various means, including issuing shares.
- Common Use: This type of company is less common and is usually used for specific purposes, such as family businesses or holding companies.
Characteristics of a Private Limited Company
Following are some of the main advantages of a private limited company:
1. Members
The act mandates that a minimum of two shareholders are required to start such a company, while the limit for maximum number of members is fixed at 200.
2. Directors
The Act specifies the number of directors in a private limited company, requiring a minimum of two directors, while allowing a maximum of up to 15 directors.
3. Limited Liability Structure
In a private limited company, the liability of each member or shareholder is limited. Therefore, even in the case of loss under any circumstances, the shareholders are liable to sell their assets for repayment. However, the personal and individual assets of the shareholders are not at risk.
4. Separate Legal Entity
This is a separate legal entity and continues in perpetual succession. This means that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution.
5. Minimum Paid-Up Capital
A private limited company is required to have and maintain a minimum paid-up capital of ₹1 lakh. It could go higher, as prescribed by MCA from time to time.
Requirements to Start a Private Limited Company
Every business type has its own set of requirements before it is incorporated.
The requirements for registering this are as stated below:
1. Members and Directors
As mentioned above, to get itself legally registered, a private limited company means it must show a minimum number of two and a maximum number of 200 members. This is a statutory requirement as mandated by the Companies Act 2013.
The directors should meet the following conditions:
- Each of the directors should have a DIN i.e. director identification number, which is given by the Ministry of Corporate Affairs
- One of the directors must be a resident of India, which means he/she should have stayed in India for not less than 182 days in the previous calendar year.
2. Name of the Company
Choosing the name of the company is often a technical task. A private limited company is required to cover three aspects while deciding a name for itself:
- Main name
- Activity to be carried out
- Mention of ‘Private Limited Company’ at the end.
Pro tip: It is not always necessary that the name the business owner is looking for will be available, as no two companies can have the same name. Therefore, it is a requirement that at the time of registration, every company has to send 5-6 names for approval to the Registrar of Company (ROC). Moreover, the submitted names should not have a close resemblance with any other company’s name.
3. Registered Office Address
After the company has been registered, the permanent address of its registered office must be filed with the registrar of the company. The registered office of the company is where the company’s main affairs are being conducted and where all the documents are placed.
4. Obtaining Other Documents
For electronic submission of documents, every company must obtain a digital signature certificate that is used to verify the authenticity of the documents. Moreover, in a company employing professionals (secretaries, chartered accountants, cost accountants, etc.) for varied activities, certifications by these professionals are necessary.
List of Documents Required for Private Limited Company
The documents required to incorporate a Pvt Ltd company include:
1. Identity Proof
Document verifying the identity of individuals such as PAN card and passport of Indian and foreign directors, respectively.
2. Address Proof
Document confirming the residential address of individuals such as utility bills or rental agreements.
3. Director Identification Number (DIN)
Unique identification number allotted to directors by the Ministry of Corporate Affairs.
4. Digital Signature Certificate (DSC)
Electronic signature ensuring the authenticity of documents filed electronically.
5. Memorandum of Association (MoA)
Legal document defining the company’s objectives and scope of operations.
6. Articles of Association (AoA)
Document outlining the rules and regulations governing the internal management of the company.
7. Declaration by Directors and Subscribers
Formal statement by directors and subscribers confirming compliance with legal requirements for company incorporation.
8. No Objection Certificate (NOC) from the landlord
Consent from the landlord permitting the use of premises as the company’s registered office.
9. Shareholding Pattern of the Proposed Company
Overview of the distribution of shares among shareholders in the company.
10. Proof of Registered Office Address
Documentation confirming the address where the company is registered and operates from.
How to Register Pvt Ltd Company? A Step-by-Step Guide
To register a private limited company in India the following steps are mandatory:
STEP 1: Choose a Unique Name for Your Business
- Choose a unique name that reflects your business’s identity and vision and is not in use by another company or trademarked by someone else.
- You can check for name availability on the Ministry of Corporate Affairs (MCA) official company registration website or the relevant regulatory authority in your state or union territory.
STEP 2: Obtain Digital Signatures from Authorised Agency
- Obtain Digital Signature Certificates (DSC) for your company’s proposed directors and shareholders from any authorised agency or vendor registered with the MCA or the Certifying Authority (CA) under the Information Technology Act, 2000.
- Digital signatures are essential for filing online documents with government authorities and verifying your identity and authenticity.
STEP 3: Obtain Director Identification Number (DIN) from MCA Portal
- Apply for a Director Identification Number (DIN) online through the MCA portal by filling out the form DIR-3 and uploading the required documents, such as identity proof, address proof, and photographs for each of the directors of your company.
- The MCA assigns a unique identification number to every individual who intends to be a company director.
STEP 4: Prepare Memorandum and Articles of Association
- The MOA is a document that defines your company’s main objectives, scope, and activities whereas AOA lays down the rules and regulations for the management and administration of your company.
- You can prepare the MOA and AOA online through the MCA portal by using the SPICe+ form and the templates provided by the MCA.
STEP 5: Get Consent and Declarations
- The directors must consent to act as directors by filling out the form DIR-2 and attaching their DSC.
- The shareholders must provide their declarations of compliance with the Companies Act, 2013 and the rules made thereunder by filling out the form INC-9 and attaching their DSC.
STEP 6: Apply for Company Name Approval
- Submit the name approval application with the required documents to the Registrar of Companies (RoC) of the state or union territory where your company will be registered.
- You can apply for name approval online through the MCA portal using the SPICe+ form and paying the prescribed fees.
STEP 7: File Incorporation Documents
- You can file the incorporation documents for LLC online through the MCA portal using the SPICe+ form and pay the prescribed fees.
- You need to attach documents, including the MOA, AOA and a few more, like AGILE-PRO, INC-14, 1NC-15, etc., along with the SPICe+ form.
STEP 8: Pay Registration Fees
- The registration fees vary depending on the amount of authorised share capital and the state or union territory where your company is registered.
- You can pay the fees online through the MCA portal using the SPICe+ form and the payment gateway.
STEP 9: Verification and Approval
- The RoC will carefully assess the documents, and if they meet all requirements, they will issue the Certificate of Incorporation which can be downloaded from the MCA portal.
- It is a legal document that confirms the existence and registration of your company.
STEP 10: Obtain PAN and TAN
- Apply for Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) online through the MCA portal using the AGILE-PRO form and the payment gateway.
- PAN is a 10-digit alphanumeric code used to identify your company for tax purposes.
- TAN is a 10-digit code used to deduct and collect tax at source from payments made by your company.
STEP 11: Open a Bank Account in a Company’s Name
- Open a bank account in your company’s name and deposit the minimum capital required. The minimum capital for a pvt. ltd. company is ₹1 lakh.
STEP 12: Obtain Business Licenses
Licencing and permit requirements can differ depending on the nature of your business.
You may need to obtain them from various authorities, such as:
- Trade licence from Municipal Corporation or Panchayat
- Environmental clearance from the Pollution Control Board
- Industrial licence from the Department of Industrial Policy and Promotion (DIPP)
- Quality certification from the Bureau of Indian Standards (BIS)
- Trademark, patent, or design registration from the Intellectual Property Office (IPO)
STEP 13: Register Your Business Under GST
- Register for GST and comply with other tax obligations. You must register for GST if your annual turnover exceeds ₹40 lakh (₹20 lakh for special category states).
STEP 14: Commence Business Operations
- After diligently completing the above procedure, your Private Limited Company is ready to commence its operations.
Read More About: How to register a Private Limited Company online in India?
What Are the Registration Costs for a Private Limited (Pvt Ltd) Company?
The registration charges for a Private Ltd. Company depend on share capital, number of directors, stamp duty of the state where you want to register the company and other fees.
What Is the Registration Timeline for a Private Limited Company?
The answer is not very simple, as it depends on various factors such as the availability of the company name, the documents required, and the workload of the government authorities. Therefore, the overall timeline for registering a private limited company in India can take around 12-18 days, depending on the time taken to complete each step and the workload of the government office processing the application.
Advantages of Private Limited Companies
1. Limited liability
In a private limited company, there is a limited liability, which means the company’s members are not at risk of losing their private assets. If a company fails, the shareholders are liable to sell their assets for payment.
2. Less number of shareholders
Unlike a public company that requires seven shareholders, a private limited company can be started with just two shareholders.
3. Ownership
As the company’s shares are owned by investors, founders, and management, the owners are at the liberty of transferring and selling their shares to others
4. Uninterrupted existence
As mentioned earlier, the company stays a legal entity until it is legally shut down, the company runs even after the death or departure of any member.
Disadvantages of Private Limited Companies
Now that you know what is Pvt Ltd company, its benefits, and how to register a company in India, let’s understand the disadvantages.
One of the disadvantages it gets with Pvt limited company is the compliance formalities for shutting it down. It often ends up getting too complicated and time-consuming.
FAQs
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
One Person Company
(OPC)
- Freelancers, Small-scale businesses
- Businesses looking for minimal compliance
- Businesses looking for single-ownership
Private Limited Company
(Pvt. Ltd.)
- Service-based businesses
- Businesses looking to issue shares
- Businesses seeking investment through equity-based funding
Limited Liability Partnership
(LLP)
- Professional services
- Firms seeking any capital contribution from Partners
- Firms sharing resources with limited liability
Frequently Asked Questions
Is a private company better than a public?
Private companies have the upper hand over public companies concerning investment in long-term strategies, keeping the values of their shares and financial figures discreet, freedom, and flexibility of operations.
What are the minimum and maximum numbers of members in a private company?
The minimum number of members in a private company is 2 directors and 2 members are required. All these members have limited liability, and the maximum number of members has increased from 50 to 200.
How much does it cost to form a private limited company?
The cost of establishing/registering a Pvt Ltd Company generally varies from INR 6,000 to INR 30,000, depending upon the number of Directors, members, the authorized share capital, and professional fees.
What is compulsory for a private limited company?
Under Section 134, all private companies must hold an annual general meeting. These companies are required to hold their meetings within six months of closing their Financial year.
What is the difference between LLP and Pvt Ltd?
LLP is a partnership where the partners have restricted liability and are not liable for the actions of other partners, whereas, in a Pvt Ltd company, the shareholders have limited liability and can transfer their shares to others. LLP has less compliance and tax burden than Pvt Ltd and less scope for raising funds from external sources.
What is the minimum turnover for a Pvt Ltd company?
There is no minimum turnover prerequisite for a Pvt Ltd company in India. However, certain threshold limits under the Companies Act 2013 trigger different compliances for Pvt Ltd companies, such as certification of annual return, corporate social responsibility, internal audit, appointment of auditor, etc. These threshold limits are based on the paid-up share capital, turnover, net worth, net profit, loans, borrowings, deposits, etc., of the Pvt Ltd company.
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Sarthak Goyal is a Chartered Accountant with 10+ years of experience in business process consulting, internal audits, risk management, and Virtual CFO services. He cleared his CA at 21, began his career in a PSU, and went on to establish a successful ₹8 Cr+ e-commerce venture.
He has since advised ₹200–1000 Cr+ companies on streamlining operations, setting up audit frameworks, and financial monitoring. A community builder for finance professionals and an amateur writer, Sarthak blends deep finance expertise with an entrepreneurial spirit and a passion for continuous learning.
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