What is a Private Limited Company?
A private limited company is a business entity owned privately by a group of individuals. The liability of its members is restricted to the shares they hold in the company, and these shares cannot be publicly traded.In India, the private limited company structure is widely favored. It can be established with just two members and two directors, with a maximum membership cap of 200. This business form is highly recommended for both professionally managed enterprises and family-owned businesses alike.
According to Section 2(68) of the Companies Act, 2013, a private limited company is defined by several key characteristics:
- It must have a minimum paid-up share capital.
- It restricts the transfer of shares as outlined in its Articles of Association (AOA).
- The number of members is limited to 200.
- It is prohibited from issuing a public invitation for the subscription of its securities.
- This structure provides a balance between the benefits of limited liability for shareholders and the flexibility of ownership and management, making it an ideal choice for countless small and medium-sized businesses across India.
What to Keep in Mind While Registering a Private Limited Company?
Two Directors: A private limited company must have at least two directors, with a maximum of fifteen. At least one director must be a resident of India.
Unique Name: The name of your business must be unique and should not match with any existing companies or trademarks in India.
Minimum Capital Contribution: There is no minimum capital requirement for a company. However, it should have an authorized capital of at least ₹2/-.
Registered Office: The registered office of a company can be any location, including a rented home, as long as a No Objection Certificate (NOC) is obtained from the landlord.
Advantages of a Private Limited Company
Capital: After the amendment of the Companies Act, 2013, private limited companies do not require a minimum paid-up capital. It can be registered with a nominal amount of Rs.2/- authorised share capital.
Separate Legal Entity: A private limited company has a legal entity separate from its members. A separate legal entity means the law identifies the company as an entity with its own assets and liabilities. It can sue and be sued in its own name, i.e. company name. There is a separation of management and ownership. Thus, the managers are responsible and answerable for the company’s loss.
Limited Liability of Members: The members of the private limited company have limited liability. It means that if the company faces a loss, the personal assets of the members will not be used to pay the company’s debts. The members are liable to pay the debts only to the extent of how much they own towards their shareholding, i.e. the unpaid share value.
Fund Raising: It is easier for a company to raise funds than a sole proprietorship or partnership firm. Angel investors and venture capitalists invest only in private limited companies or public limited companies.
Perpetual Existence: A private limited company has a perpetual succession, which means it has a continued or uninterrupted existence until it is legally dissolved. Since the company is a separate legal person, the death of the founders, directors, or members does not affect its existence. It continues its business irrespective of the changes in membership.
Foreign Direct Investment (FDI): In a private limited company, 100% Foreign Direct Investment (FDI) is allowed, which means any foreign person or entity can directly invest in the company. FDI will help the company grow across the nation and even globally.
Credibility: The financial statements and incorporation details of a private limited company are available on the MCA website. This improves the company’s credibility since it makes it easy for investors, financial institutions, and clients to easily authenticate company details before associating with it.
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