To register a private limited company, a minimum of two shareholders and two directors are required. MCA has recently implemented major changes to the process and made it very simple to incorporate a company.
A Private Limited Company (PLC) is the most prevalent and popular type of corporate legal entity in India. PLC registration is governed by the Companies Act, 2013 and the Companies Incorporation Rules, 2014. Vakilsearch offers online PLC registration as well. In this article, we look at the Private Limited Companies Facts in detail.
What Is a Pvt Ltd Company?
A Pvt. ltd company is a privately held business entity. It is privately held by the shareholders and the maximum number of shareholders should not be more than 200. Similarly, the liability arrangement in a private limited company is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them.
Beyond the value of the shares, the shareholders cannot be held liable. Before the registration of a private limited company, its objectives are determined. Likewise, the governing body for such a company is the Ministry of Corporate Affairs (MCA).
Types of Private Limited Companies
In the corporate landscape, private limited companies offer a versatile structure catering to diverse business needs. Understanding the nuances of these entities is crucial for entrepreneurs seeking the right fit for their ventures. Let’s delve into the various types of private limited companies, each tailored to specific objectives and operational scopes.
Limited by Shares:
One prevalent structure is the ‘Limited by Shares’ company, where shareholders’ liability is restricted to the nominal value of their shares. This shields personal assets, making it an attractive option for businesses seeking external investment.
Limited by Guarantee:
In contrast, ‘Limited by Guarantee’ companies are typically chosen by non-profit organisations. Members commit to a predetermined guarantee amount, limiting their liability to that figure. This structure is common among clubs, associations, and charitable entities.
Unlimited Company:
An ‘Unlimited Company’ stands out for its absence of liability caps. Shareholders have unlimited responsibility for the company’s debts, offering a unique risk-sharing approach. This format often suits smaller enterprises with a closely-knit ownership structure.
One Person Company (OPC):
Tailored for solo entrepreneurs, the ‘One Person Company’ (OPC) allows single ownership with limited liability. This facilitates full control for the founder while maintaining legal separation between personal and business assets.
Small Company:
Recognising the distinct needs of smaller enterprises, the concept of a ‘Small Company’ brings certain relaxations. With lower compliance requirements, reduced reporting obligations, and simplified procedures, it aims to promote ease of doing business for startups and SMEs.
Producer Company:
Geared towards farmers and agricultural producers, the ‘Producer Company’ model enables collective efforts. It fosters collaboration, resource-sharing, and enhanced market access for those involved in agricultural production.
4 Advantages
Limited liability
There is limited liability, which means the members of the company are not at risk of losing private assets. If a company fails, the shareholders aren’t liable to sell their assets for payment.
Fewer Shareholders
A PLC can be started with just two shareholders, unlike a public company that requires seven.
Ownership
As the company’s shares are owned by investors, founders, and management, the owners are at the liberty of transferring and selling their shares to others. Through this, there is also less complexity and confusion.
Uninterrupted Existence
The company is a legal entity. So, until it is legally shut down the company runs even after the death or departure of any member.
Characteristics
A PLC has the following characteristics:
1. Membership
In order to start a PLC, a minimum of two shareholders is required. However, because it is a small business holding enterprise, there is also a maximum cap on the number of members fixed at 200. Moreover, there is also a requirement for two directors to run the company.
2. Limited Liability Structure
In a PLC, the liability of each member or shareholder is limited. Therefore, even in the case of loss under any circumstances, its shareholders aren’t liable to sell their own assets for payment. Likewise, the personal assets of the shareholders are not at risk.
3. Separate Legal Entity
A Pvt Ltd company is a separate legal entity and continues in perpetual succession. Meaning that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. Additionally, the life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution.
4. Minimum Paid-up Capital
A PLC requires to have and maintain a minimum paid-up capital of ₹1 lakh. It could vary, as prescribed by the MCA from time to time.
5. Minimum Subscription
Subscription here refers to the amount received by the company by way of issuance of shares in a given period of time. Therefore, in a given period of time before the commencement of the business, a company is required to receive 90% of the total worth of all the shares. Similarly, failing this, in the absence of the minimum subscription, the commencement of business is not allowed.
How to Register a Company Online: The Registration Process
Company registration in India benefits start-ups since it offers them an advantage over those who have not registered. The process of registering your company is complex and involves many compliances.
- Obtain Digital Signature
- Apply for the DIN
- Application for the name availability
- Submission of MoA and AoA to register a private limited company
- Apply for the PAN Card and TAN of the company
- RoC issues a certificate of incorporation with a PAN and TAN
Requirements
The requirements for registering a PLC are as stated below:
- A minimum of two adult persons are required to act as directors of the company
- Minimum of 2 directors and can have a maximum of 15 directors
- One of the directors of a private limited company has to be an Indian citizen and Indian resident
- The other director(s) can be foreign nationals
- Two persons are required to act as shareholders of a company
Private Limited Companies Can Be Registered at Only Commercial Places
Fact: Entrepreneurs believe that Private Limited Companies can only be registered in commercial premises, but this is untrue. The company’s registered office address can be the entrepreneur’s residential or rented home address, provided the company displays its name and registered office address outside the office or place where it conducts business.
A Venture Must Have a Certain Level of Turnover or Sales to Register a Private Limited Company
Fact: Contrary to popular belief, a Private Limited Company can be established from scratch, and there is no obligation for the venture to have sales or turnover at the time of registration.
It Is Time-Consuming and Expensive to Register and Maintain a Private Limited Company
Fact: The process of incorporating a Private Limited Company takes less than three working days if all documents are in order. Additionally, the misconception that it is an expensive affair due to the Rs. 1 lakh paid-up capital requirement is outdated, as this requirement no longer applies.
Directors of the Company Must Hold Shares in the Company
Fact: While directors and shareholders are often the same individuals in Private Limited Companies, it is not mandatory for every director to hold shares in the company.
After Incorporation, Changes in Private Limited Companies Are Tough
Fact: Private Limited Companies offer flexibility, allowing changes in capital, shareholding, directorship, business scope, office address, etc., after incorporation as required by law.
Shareholders and Directors Meetings Are Required at Regular Intervals
Fact: While there are requirements for board meetings and annual general meetings, these are routine business activities. Holding these meetings should not deter businesses from choosing a Private Limited Company as their form of operation.
Conclusion
Hope you understand the private limited companies facts. So, if you are planning to register a company, we appreciate you on behalf of Vakilsearch. Further, we can help with setting up your company by making company registration easy for you. Click here to know more about it.
FAQs on Private Limited Companies Facts
What do you need to know about private limited company?
A private limited company (PLC) is a type of business structure commonly used in many countries. It offers a separate legal entity from its shareholders, limited liability protection, and other advantages for businesses.
What are 5 characteristics of a private limited company?
Separate legal entity: This means the company is treated as a separate legal person from its shareholders. This protects shareholders' personal assets from business debts and liabilities.
Limited liability: Shareholders' liability is limited to the amount they have invested in the company. This means they cannot be held personally liable for the company's debts beyond their investment.
Share capital: The company's ownership is divided into shares, which can be bought and sold by shareholders.
Limited transferability of shares: Shares in a PLC cannot be freely traded on a public stock exchange. This restricts ownership and helps maintain control within a smaller group of investors.
Board of directors: The company is managed by a board of directors elected by the shareholders. The board is responsible for overseeing the company's operations and making strategic decisions.
What are 5 advantages of a private limited company?
Limited liability
Separate legal entity
Perpetual succession
Easy transfer of ownership
Tax benefits
What are 3 disadvantages of a private limited company?
Restrictions on the transfer of share
Limited ways of generating capital
Limited number of shareholders (up to 50)
Who controls a private limited company?
A private limited company is controlled by its directors, who are legally required to perform certain duties for the company and its shareholders
Who owns a PLC?
A PLC is owned by its shareholders, who hold shares in the company's capital. The ownership of a PLC can be concentrated among a small group of individuals or spread out among many shareholders.
Also, Read
