A private limited company is a privately held business entity held by private stakeholders. The liability arrangement, in this case, is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them.
A private limited company is a company privately held for small businesses. This type of business entity limits owner liability to their shareholdings, the number of shareholders to 200, and restricts shareholders from publicly trading shares.
1. Limited risk to personal assets– The shareholders of a private limited company have limited liability. This means that as a shareholder you will be liable to pay for company’s liability only to the extent of the contribution made by you. The shareholders do not have any personal liability and hence need not pay for the company’s liability out of their own assets.
2. Legal Entity– A private limited company has a separate legal entity different from its directors and shareholders. This means that the company is responsible for the management of its assets and liabilities, debtors and creditors. The shareholders will not be held responsible for the losses of the company. So, the creditors cannot proceed against the directors or shareholders to recover the money.
3. Raising Capital– Even though registering a private limited company comes with compliance requirements, it is preferred by entrepreneurs as it helps them raise funds through equity, expand and at the same time limits the liability.
4. Trustworthiness– Companies in India are registered with the Registrar of companies (ROC) under the Companies Act 2013. Anyone can check the details of the company through the Ministry of Corporate Affairs (MCA) portal. Also, details of all the directors are provided while the formation of the company. Hence a private limited company form of business structure is trusted more.
5. Continue Existence– A company has ‘perpetual succession’, i.e. continue or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death or cessation of any member but continues to be in existence irrespective of the changes in membership.
There are three types of Private Limited Company registrations, and entrepreneurs can choose the one that best suits the needs of their business.
Ownership: The ownership of the company is divided into shares.
Liability: The liability of the shareholders is limited to the amount of shares they have subscribed to.
Capital Structure: The company raises capital by issuing shares to shareholders.
Common Use: This is the most common type of company, suitable for businesses of all sizes.
Ownership: Ownership is not based on shares but on membership.
Liability: The liability of the members is limited to the amount they guarantee to contribute to the company in the event of winding up.
Capital Structure: The company doesn’t raise capital through shares but relies on donations, grants, or membership fees.
Common Use: Often used for non-profit organizations, clubs, or societies.
Ownership: The ownership structure can vary.
Liability: The liability of the members is unlimited, meaning their personal assets can be used to settle the company’s debts.
Capital Structure: The company can raise capital through various means, including issuing shares.
Common Use: This type of company is less common and is usually used for specific purposes, such as family businesses or holding companies.
Looking to register your company as a private limited company? Here's the step-by-step guide for registering your company as a private limited company:
Step 1: Obtain Digital Signature Certificate (DSC)
Step 2: Obtain DIN
Step 3: Name Availability*
Step 4: Form SPICe+ INC-32
Step 5: e-MOA and e-AOA
Step 6: PAN and TAN Application
The documents required to incorporate a Pvt Ltd company include:
Document verifying the identity of individuals such as PAN card and passport of Indian and foreign directors, respectively.
Document confirming the residential address of individuals such as utility bills or rental agreements.
Unique identification number allotted to directors by the Ministry of Corporate Affairs.
Electronic signature ensuring the authenticity of documents filed electronically.
Legal document defining the company’s objectives and scope of operations.
Document outlining the rules and regulations governing the internal management of the company.
Formal statement by directors and subscribers confirming compliance with legal requirements for company incorporation.
Consent from the landlord permitting the use of premises as the company’s registered office.
Overview of the distribution of shares among shareholders in the company.
Documentation confirming the address where the company is registered and operates from.
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