Private Limited Company

A Private Limited Company is a separate legal entity which is registered under Companies Act, 2013. It is a type of small business entity, which can be incorporated by having minimum 2 shareholders and 2 directors. A private limited company can have maximum 200 shareholders and 15 directors(subject to MCA approval) and prohibited from doing publicly trading of Shares.

Introduction of Private Limited Company

The Companies Act on 1956 has undergone several changes since its inception and the recently asserted Companies Act 2013 is in force with amendments in 2015 and 2016. Accordingly, the definition and scope of private companies were also revised in the recent times.The details mentioning here are conformed to the recent Act.

A Private limited company is a separate legal entity, under the Companies Act. It is the most popular corporate entity amongst small, medium and large businesses in India due to various advantages.

  • Ideal for Startups & Growing Business
  • Easy to get funding, Raise Venture Capital Fund
  • Limited Liability

What is a Private Limited Company?

By virtue of section 2(68) of the Companies Act, 2013, a private company means a company, which has an authorise capital of 100000 rupees or higher, as may be prescribed, and by its articles: 

  • restricts the right to transfer shares 
  • Limits the numbers of its members to 200 
  • Prohibits any invitation to the public to subscribe for any shares in, are debentures of the company(No Public Trading of Shares)
  • Prohibits any invitation or acceptance of deposits  from persons other than its member 
  • The word ‘Private Limited’ must be added at the end of its name  

Note: Only the number of members is limited to 200; a private company may issue debentures to any number of persons, the only condition being that an invitation to public to subscribe to debentures is prohibited.

Advantages of Private Limited Company

A private limited company is one type of business structure which has some reasons to opt. The benefits of the private company include:

  1. Scope of expansion
  2. Limited Liability
  3. Separate Legal Entity
  4. Tax benefits

To know more benefits visit Advantages of Private Limited Company

Disadvantages of Private Limited Company

A private limited company is the most common form of business entity which has its own shortcomings. Some of the drawbacks of private limited company are:

  1. Expensive registration process
  2. Costly winding up process
  3. Dimension of liability
  4. Division of ownership

To read more visit Disadvantages of Private Limited Company

Quick view on the various Private Company's aspects

Number of directors

  • A minimum of two and maximum of 15 directors can be appointed in a Private Limited Company. But, if company requires directors more then the limit than they can appoint directors by passing the special resolution. 
  • Persons who, having been formerly in the employment of the company can be the members of the company, even after their employment, they will continued to be the members of the company.

Private Limited Company Registration

  • NRI or Foreign Nationals can be the Shareholder of the company
  • At least 1 Indian Director & Shareholder is required
  • Obtain DIN and DSC for directors
  • Filing name reservation form and MOA, AOA of the company

To read the whole registration process visit Private Limited Company Registration Procedure

Tax Requirements

As per Income Tax Act 1961, All the companies are liable to pay income tax at the flat rate of 30% on total net income plus cess at the effective rate of  3%. There are separate tax requirements for legal bodies and Individuals. The provisions of MAT ( Minimum Alternate Tax) and dividend distribution tax are also applicable to private limited company.

To read more tax provisions visit Private Limited Taxation

Conversion of Private Limited Company

Private Limited Company can be converted into various types of Business, which are registered under Companies Law. All the conversion rules are contained under Companies (Incorporation) Rules, 2014. Conversion of Private Limited Company can be done by altering the MOA and AOA of the company.

To know the conversion process visit Converting a Private Limited Company

Compliance for Private Limited Company

There are some Mandatory compliances which have to be done by every private limited company. Directors of the company are liable to comply with the compliance duty otherwise it will attract huge penalties.

Some mandatory compliances are:-

  • Board Meeting
  • Annual General Meeting
  • Audit of the Company
  • Registered Office filing
  • Income tax filing

To read more visit Private Limited Company Compliances

Private Limited Comparison

Every entrepreneur who is planning to start a business, the first and foremost question come in mind is the type of business entity is to be formed. Although private limited company is the trending business entity amongst the startups but a comparison among the business entities clear the vision.

To know the comparison visit Private Limited Comparison

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