PRIVATE LIMITED COMPANY

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Entrepreneurs have several options when it comes to choosing a business structure. In India, one of the most popular choices is the private limited company. This structure offers several benefits for businesses that choose to incorporate under it. 

 A private limited company is a privately held business entity where ownership is restricted to a specific group of individuals. The liability of each member is limited to the number of shares they hold, and its shares cannot be traded publicly.

The private limited company is one of the most preferred business structures, especially among startups, small to medium enterprises, and family-run businesses. It can be incorporated with a minimum of two members and two directors, while the maximum number of members is capped at 200.

As per Section 2(68) of the Companies Act, 2013, a private limited company is defined by the following characteristics:

• It must have a minimum paid-up share capital.
• It restricts the transfer of shares through its Articles of Association (AOA).
• It limits the number of its members to 200.
• It prohibits public invitations to subscribe to its securities.

 To register a private limited company in India, the following minimum requirements must be met:

• At least two members (individuals only; not artificial legal entities). 
• A minimum of two directors.
• At least one director must be an Indian citizen and resident in India.
• A minimum authorised share capital of ₹1 lakh.
• Digital Signature Certificates (DSC) for all proposed directors.

The registration of a private limited company in India is a fully online process, carried out through the Ministry of Corporate Affairs (MCA) portal using the SPICe+ form. As part of the process, the e-Memorandum of Association (e-MOA) and e-Articles of Association (e-AOA) must be submitted and digitally signed by the company’s proposed directors and subscribers. Therefore, obtaining a Digital Signature Certificate (DSC) is a prerequisite for all directors.

Step 1. Name Reservation (Part-A of SPICe+):
Submit two proposed names for the company through Part-A of the SPICe+ form. The names must comply with the naming guidelines under the Companies Act, 2013 and be approved by the Registrar of Companies (ROC).

Step 2. Complete Incorporation Details (Part-B of SPICe+):
Within 20 days of name approval, fill out Part-B of the SPICe+ form. This step includes:

        a. Company incorporation

        b. Application for Director Identification Number (DIN)

        c. PAN and TAN application

        d. GSTIN registration

        e. EPFO and ESIC registration

        f. Opening of the company’s bank account

Step 3. Document Submission and Fee Payment:
Upload all necessary documents, pay the applicable fees, and submit the completed SPICe+ form.

Step 4. Certificate of Incorporation:
Upon successful verification, the ROC will issue the Certificate of Incorporation, officially recognizing the private limited company.
 

1. No Minimum Paid-up Capital
Following amendments to the Companies Act, 2013, there is no longer a requirement for minimum paid-up capital to register a private limited company. It can be incorporated with a nominal authorised share capital of ₹1,00,000.

2. Separate Legal Entity
A private limited company is a distinct legal entity, separate from its owners. This means the company can own assets, incur liabilities, enter into contracts, and sue or be sued in its own name. There is also a clear distinction between ownership and management, making directors accountable for company operations and any associated liabilities.

3. Limited Liability of Members
Members (shareholders) enjoy limited liability, meaning their personal assets are protected in case the company faces financial losses or debts. Their liability is restricted only to the unpaid amount on their shares.

4. Ease of Fundraising
Private limited companies have better access to funding compared to sole proprietorships or partnerships. They are more attractive to investors, including angel investors and venture capitalists, who typically prefer to invest in structured business entities like private or public limited companies.

5. Perpetual Succession
The company continues to exist regardless of changes in ownership, death, or resignation of members or directors. This ensures business continuity unless the company is formally wound up.

6. 100% Foreign Direct Investment (FDI)
Private limited companies are eligible for 100% FDI through the automatic route. This allows foreign individuals or entities to invest directly, enhancing the potential for global expansion and business growth.

7. Enhanced Credibility
Details of a private limited company, such as its incorporation and financial filings, are available on the Ministry of Corporate Affairs (MCA) portal. This transparency boosts credibility with banks, investors, and clients.

1. Limited Number of Members
A private limited company can have a maximum of 200 members, unlike public limited companies, which can have unlimited shareholders. This restriction can limit growth in certain scenarios.

2. Restriction on Share Transfer
The Articles of Association (AOA) of a private limited company restrict the transferability of shares. This makes it harder for shareholders to exit or bring in new investors compared to public companies.

3. Cannot Issue Prospectus to Public
Private limited companies are prohibited from issuing a prospectus or inviting the public to subscribe to their shares. As a result, their shares cannot be listed or traded on stock exchanges.

Conclusion:
A private limited company offers numerous advantages like limited liability, legal recognition, and ease of raising capital, making it ideal for startups and growing businesses. However, its limitations, such as restricted share transfer and capped membership, should be carefully considered before incorporation.