One of the most popular types of business entities is a Private Limited Company. A company registration in India requires a minimum of two members and directors. The directors of a private limited company have limited liability to creditors. In a case of default, banks/creditors can only sell company's assets but not personal assets of directors.
Private Limited Company, the most popular legal structure for businesses, should be chosen by anyone looking to build a scalable business. It is one of the most popular legal structure option for businesses in India. A Private limited company has a minimum of two members and a maximum of fifty members. A director of a private limited company has limited liability to creditors. In case of a default, banks / creditors can sell only company's assets but not the personal assets of a directors. A Private limited company is considered one of the most popular corporate entity amongst the small, medium and the large businesses in India due to its various advantages.
Essential Facts on Company Registration
What if I am a single founder?
A private limited company is an entity with two directors and two shareholders at the minimum. If you are a single shareholder, you can also bring in your mother, father or any other relative to be part of the limited company with just one single share.
Why do start-ups prefer private limited companies?
Simple. Start-ups set-up private limited companies so that they can raise venture capital funding and offer their best employees stock options. Without funding and stock options, it's almost impossible to build and scale a large business. Banks and other lenders would also much rather lend to private limited companies, as compared to sole proprietors.
What is the procedure to register one?
Initially, we help you get a digital signature certificate (also known as DSC), which is nothing but an e-signature to help you complete the registration online. It usually takes two days to get the DSC from the time you submit the documents. Next, we apply for the Director Identification Number (also called a DIN). This typically takes one day. The third phase involves selection of a name for your company. Now, do remember that your company name need not be your brand name. For example, Naukri.com has been incorporated as InfoEdge Technologies. Once done, we will prepare the Memorandum and Articles of Association and apply for the Certificate of Incorporation.
How many shareholders can there be in a private limited company?
A private limited company must have at least two directors and shareholders, and can have a maximum of 15 directors and 50 shareholders.
How much do you need to invest?
Good news. You don't need to invest any money upfront. Most entrepreneurs do bring computers and other necessities at the very beginning. These can be the assets of the company. Private limited companies in India do not need to have any paid-up capital (that is, they do not need to introduce any money into the company).
What regulatory requirements are placed on private limited company?
As private limited companies are not traded publicly, regulatory requirements placed on them are fewer than on public companies. For example, they need not disclose their books of accounts. Because of this advantage, they need only worry about the long term rather than face the music from their shareholders in case their results in a particular quarter are poor.
MINIMUM REQUIREMENTS FOR PRIVATE LIMITED COMPANY REGISTRATION
1. Minimum 2 Shareholders
2. Minimum 2 Directors
3. Minimum 1 Lac Share Capital
4. DPIN for all Directors
5. Atleast one Designated partner should be an Indian Resident
Features of Private Limited Company
- Require 2 Person as Entrepreneur i.e Directors.
- Easily Setup and recommend to Growing Startups.
- Limited Liability for Members.
- More Credibility as Compare to others.
- Easily raise funds from Investors.
- ESOP Option are available to motivated Employees.
Procedure and Steps Taken for Register a Private Limited Company
- Application for Director Identification Number DIN in form DIR-3 & DSC Digital Signature Certificate.
- Search for the Company Name availability.
- Application for the Name availability.
- Drafting on Memorandum of Association MOA & Articles of Association AOA.
- Filing of e-forms with ROC Registrar of Companies.
- Payment of ROC Fees & Stamp Duty.
- Verification of documents / forms by ROC
- Issue of Certificate of Incorporation by ROC
ADVANTAGES OF PRIVATE LIMITED COMPANY
There are multiple reasons to choose private limited company:
- Preferred by banks, VCs & investors
- Easy to allocate and redistribute shares to investors or other directors
- Separate legal entity which limits your liability
- Offers the flexibility of a partnership firm and the advantages of a Public Ltd Company
- Easy to register, manage & run
- Easy to dissolve or wind-up.
Disadvantages of Private Limited Company
- Statutory Compliance are High.
- High Setup Cost as Compare to Others.
- Involvement of other Directors in Decision Makings.
- Restricted to transfer of the shares to others without agreements.
- Not allow invite to public for deposits.
Documents Requirements for Private Limited Company Registration
- ID Proof and Address Proof for all Directors.
1. ID Proof PAN Card is Mandatory of all Directors.
2. Aadhar Card | Voter Id | Passport | Driving License anyone of all Directors.
- Registered office address proof (Only for Communication Purpose)
1. Latest utility bill (Electric bill/Telephone bill/Gas Bill) or latest tax receipt/ownership deep of the property to be used for registered office.
Frequently Asked Questions on Private Limited Company Registration
1. Why is Private Limited Company the best choice for Start-ups?
In order to execute the big idea into a long-term business, choosing the right form of business is important and for start-ups, Private Limited is the best option for the following reasons:
- Legal Compliances are limited.
- No minimum capital Contribution.
- One can start off with just 2 directors/shareholders.
- Funding requirements can be fulfilled with the help of shareholders and financial bodies.
- Limited liability of the members.
- Growth of Business can be done by converting a Private Limited to a Public Limited but an Limited Liability Partnership cannot be converted to a Private Limited hence it restricts the growth.
2. Is there a limit on Shareholders in a Private Limited Company?
A minimum of "Two" and a maximum of "Two Hundred" Shareholders are required to incorporate a Private Limited Company.
3. What is the validity of a Private Limited Company?
On incorporation, the company becomes active and comes in existence as long as the annual compliances are done on a regular basis. Otherwise, the Company will become a Dormant Company and is liable to be struck off from the register after a period of time. On being Struck-off, the same can be revived up to a period of 20 years.
4. I am already in employment. Can I become the director in Private Limited Company?
Yes, you can become the director in private limited company, if not restricted by the employment agreement. There are no legal constraints in this regard.
5. What is the minimum investment required to start a Private Limited Company?
There is no Statutory limit defined for authorized capital. It can range from minimum to any amount, i.e., with no upper limit.
6. Your company is a Bangalore / Chennai based Company; I am from a different state. Can I still register a company?
Yes, the company incorporation process is online. We can exchange the required documents through email.
7. What is the limit for Directors in a Private Limited Company?
A minimum of "Two" and not more than "Fifteen" Directors are required to incorporate a Private Limited Company.