PRIVATE LIMITED COMPANY

PRIVATE LIMITED COMPANY

A Private Limited Company is a popular business structure in India, especially for startups and small-to-medium enterprises. It is a privately-held, corporate business entity with limited liability for its shareholders. The shares of a Private Limited Company cannot be traded publicly on a stock exchange. The name of the company must end with the words "Private Limited" or "Pvt. Ltd.". 

Key features

• Limited Liability: The personal assets of the company's owners (shareholders) are protected. Their liability is limited to the value of the shares they own.
• Separate Legal Entity: The company has its own legal identity, separate from its directors and shareholders. This means it can own assets, incur liabilities, and enter into contracts in its own name.
• Perpetual Succession: The company has a continuous or uninterrupted existence until it is legally dissolved. The company's operations are unaffected by the death or departure of any member or director.
• Membership: A minimum of two members and a maximum of 200 members are allowed.
• Directors: The company requires a minimum of two directors. At least one director must be a resident of India, meaning they have resided in India for a minimum of 120 days in the previous financial year.
• Share Transfer: A Private Limited Company restricts the right to transfer its shares. Transfers are often governed by the company's Articles of Association (AOA) and typically require approval from other shareholders or directors.
• No Public Invitation: The company is prohibited from inviting the public to subscribe to its shares or debentures. 

Incorporation process

The incorporation process is streamlined through the Ministry of Corporate Affairs (MCA) portal using the integrated SPICe+ form, which handles name reservation and registration in a single application. 

1. Digital Signature Certificate (DSC): All proposed directors must obtain a Class 3 DSC for electronically signing the application documents.
2. Director Identification Number (DIN): DINs can be applied for the proposed directors directly within the SPICe+ form.
3. Name Reservation: Reserve a unique company name using SPICe+ Part A. This can be filed either to reserve the name first or along with the incorporation application.
4. File for Incorporation: File SPICe+ Part B along with the e-Memorandum of Association (e-MoA) and e-Articles of Association (e-AoA). The e-MoA and e-AoA outline the company's objectives and internal rules, respectively.
5. Post-Filing Registrations: The SPICe+ process also covers mandatory registrations for PAN, TAN, EPFO, ESIC, and a bank account.
6. Certificate of Incorporation: Upon approval by the Registrar of Companies (ROC), the company receives its Certificate of Incorporation, PAN, and TAN via email.
7. Commencement of Business: The company must file a declaration in Form INC-20A within 180 days of incorporation to begin business operations. 

Advantages

• Limited Liability Protection: Protects the personal assets of the owners.

• Fundraising: The corporate structure and credibility make it easier to raise capital from investors and financial institutions compared to partnerships or sole proprietorships.
• Growth Potential: Provides a robust legal framework that supports scaling operations.
• Credibility: The company's details on the MCA portal enhance trust with clients, suppliers, and lenders. 

Disadvantages

• Higher Compliance: Compared to sole proprietorships or LLPs, private limited companies have more extensive compliance requirements, including annual filings, regular audits, and board meetings.
• Higher Costs: The incorporation process and ongoing compliance involve higher costs compared to simpler business structures.
• Restricted Shares: Shares cannot be freely transferred or sold to the public, which can limit the liquidity for owners.