What is a Private Limited Company?
A private limited company, also known as a Pvt Ltd company, is an organisation that limits the liability of its owners and restricts the transfer of its shares. The maximum number of shareholders allowed is 50, and it is registered under the Companies Act 2013.
As per Section 2 (68) of the Companies Act, 2013, the definition of a private limited company includes the following key points:
- It restricts the right to transfer its shares.
- Except in the case of a One Person Company, it limits the number of its members to two hundred.
- It prohibits any invitation to the public to subscribe for any securities of the company.
Private limited companies are popular among small and medium-sized enterprises (SMEs) due to their flexibility, limited liability protection, and simplicity in ownership control. They also have several advantages over public companies, including long-term investment opportunities, the ability to keep data confidential, operational independence, and greater flexibility in decision-making.
A private limited company is a business entity owned by private stakeholders. It operates with a limited liability structure, meaning shareholders are only liable for the amount they have invested, based on the shares they hold.
Private Limited Companies have a separate legal existence from their owners, allowing them to enter into contracts, own property, and conduct business in their name. They are governed by the regulations outlined in the Companies Act and must comply with various statutory requirements, including filing annual financial statements and holding regular meetings. Despite certain limitations on the number of shareholders and transferability of shares, Private Limited Companies offer several advantages such as flexibility in management, access to capital through equity shares, and perpetual succession. These attributes make them a popular choice for entrepreneurs looking to establish a business with limited risk and maximum growth potential.
Characteristics of a Private Limited Company
Private limited companies have the following characteristics:
1. Members
The Act requires a minimum of two shareholders to establish a private limited company, with a maximum membership capped at 200.
2. Directors
A private limited company must have at least two directors, as per the Act, with a maximum limit of 15 directors.
3. Limited liability structure
In a private limited company, each shareholder's liability is limited to their shareholding. Even in the event of losses, shareholders are only liable for the value of their shares, with their personal assets protected from any claims.
4. Separate legal entity
A private limited company is a distinct legal entity with perpetual succession. This means it continues to exist even if all members die, or it becomes insolvent, until it is formally dissolved by resolution.
5. Minimum paid-up capital
The minimum paid-up capital required for a private limited company is Rs. 1 lakh, though this may increase as per updates from the Ministry of Corporate Affairs (MCA).
Requirements to start a Private Limited Company
The requirements for registering this are outlined as follows:
1. Decide on members and directors
As stated earlier, to register legally, a private limited company must have a minimum of two members and a maximum of 200, as required by the Companies Act 2013.
The directors must meet the following criteria:
- Each director should have a DIN (Director Identification Number), issued by the Ministry of Corporate Affairs.
- One director must be an Indian resident, meaning they should have lived in India for at least 182 days in the previous calendar year.
2. Choosing a name of the company
Choosing a company's name can be a technical process. A private limited company must consider three key elements when deciding its name:
- Main name
- Activity to be carried out
- The term ‘Private Limited Company’ at the end
Please note: The desired name may not always be available, as no two companies can have the same name. During registration, the company must submit 5-6 name options to the Registrar of Companies (ROC) for approval. Additionally, the submitted names must not closely resemble any existing company’s name.
3. Have a registered office address
Once the company is registered, its permanent registered office address must be filed with the Registrar of Companies. This address is where the company's main operations are conducted and where official documents are kept.
4. Obtain necessary documents
For electronic document submission, every company must obtain a digital signature certificate to verify the documents' authenticity. Additionally, if the company employs professionals like secretaries, chartered accountants, or cost accountants, certifications from these professionals are required for specific activities.
Additionally, while fulfilling these prerequisites, entrepreneurs may also consider exploring secured business loans to secure essential funding for various startup needs, such as initial capital, working capital, or expansion initiatives, thereby bolstering the company's growth prospects.
Members and directors
- At least two members and directors are required.
- Directors must be individuals, not companies.
- Members' liability is limited to their shareholding.
Learn about farmer producer company for more insights on company formation.
Name of the company
- Must be unique and not similar to existing companies.
- Should not violate trademarks or copyrights.
- Should end with "Private Limited" or "Pvt. Ltd."
Check company registration fees for detailed information on the cost of registration.
Registered office address
- Must be a physical address in India.
- Can be a commercial or residential property.
- Address proof is required during registration.
Learn about conversion of private limited company into LLP for more details.
Obtaining other documents
- Memorandum of Association (MOA) and Articles of Association (AOA).
- Director identification number (DIN) for directors.
- Digital signature certificates (DSC) for directors.
Learn about the difference between private and public companies for insights on various company structures.
Advantages of Private Limited Companies
- Limited liability protection for shareholders.
- Separate legal entity status.
- Access to capital through equity shares.
- Perpetual succession, unaffected by changes in ownership.
Disadvantages of Private Limited Companies
- Complex legal compliance requirements.
- Higher incorporation and maintenance costs.
- Restrictions on transferability of shares.
- Limited access to public funding compared to public companies.
List of documents required for Private Limited Company
Documents needed include:
- PAN card and address proof of directors and shareholders.
- Memorandum and Articles of Association.
- Certificate of Incorporation.
- Address proof of the registered office.
How to register a Private Limited Company?
Registering a private limited company involves:
- Applying for Director Identification Number (DIN) and Digital Signature Certificate (DSC).
- Filing the application for company name approval.
- Drafting Memorandum and Articles of Association.
- Obtaining the Certificate of Incorporation from the Registrar of Companies.
What are the registration costs for a Private Limited (Pvt Ltd) Company?
The registration charges for a private limited company vary based on factors like the share capital, number of directors, stamp duty of the state where the company is being registered, and other associated fees.
Particulars |
Amount (in Rs.) |
Name reservation |
Rs. 1,000 |
DIN application fee |
Rs. 500 per DIN |
DSC fee |
Rs. 1,500 per DSC |
Memorandum of association fees |
Rs. 200 per lakh of authorised share capital or part thereof |
Articles of association fee |
Rs. 300 per lakh of authorised share capital or part thereof |
PAN application fee |
Rs. 66 |
TAN application fee |
Rs. 65 |
Stamp duty |
Varies from state to state |
Professional tax registration fee |
Varies from state to state |
Professional tax registration fee |
Varies from state to state |
What is the registration timeline for a Private Limited Company?
The timeline is not straightforward, as it depends on factors such as the availability of the company name, required documents, and the workload of government authorities. On average, registering a private limited company in India can take approximately 12-18 days, depending on how long each step takes and the government office’s workload.
Conclusion
Understanding private limited company meaning is crucial as it informs your decisions and strategies moving forward. Starting a pvt ltd company offers limited liability protection and separate legal status, making it an attractive option for entrepreneurs. However, it requires careful planning, compliance with legal requirements, and proper documentation. For financial assistance, consider exploring business loan options to support your company's growth and expansion.
