How to Set Up a Private Limited Company?
A private limited company is a business that is owned and run by private people. In this case, the liability arrangement is like that of a limited partnership, where a shareholder’s liability is only as high as the number of shares they own.
Since the startup ecosystem is growing all over the country and more and more people want to start their own businesses, it’s important to know about the different types of business registration, such as sole proprietorship, limited liability company, and private limited company.
Section 2 (68) of the Companies Act, 2013, says the following about a private company:
“A company with a minimum amount of paid-up shares as may be set, and whose articles,
(i) Limit the number of times its shares can be sold;
(ii) Unless it’s a “Person Company,” it can only have up to 200 members;
(iii) Makes it illegal to ask members of the public to buy shares of the company.
We’ll talk about different parts of a private limited company in this article.
Private companies have an advantage over public companies when it comes to investing in long-term strategies, keeping the values of their shares and financial numbers private, and running their businesses with freedom and flexibility.
Characteristics of a Private Limited Company
Now that you know what a private limited company is, it’s time to learn what makes it unique:
Membership: Just like any other company, a company like this needs at least two shareholders to start. But since it is still a small group, there is a limit on how many people can join, which is set at 200. The company also needs to have at least two directors.
Structure with limited liability: In a private limited company, each member or shareholder’s liability is limited. So, even if the company loses money, the shareholders have to sell their own property to pay back the company. But the shareholders’ personal and individual assets are not at risk.
Separate legal entity: This is its own legal entity, and it will keep going forever. This means that the company still exists in the eyes of the law even if all of its members die or if it goes bankrupt or out of business. The company will last forever, regardless of how long its shareholders or members live, unless it is dissolved by a resolution.
Minimum paid-up capital: A private limited company must have and keep at least Rs. 1 lakh in paid-up capital. It could go up, as the MCA sometimes tells us to do.
Requirements to Start a Private Limited Company
Before a business is incorporated, it must meet the requirements for its type. Here are the things you need to do to register this:
1. Members and Directors
As was said above, a private limited company must have at least two members and no more than 200 members in order to be legally registered. This is required by law, as stated in the Companies Act of 2013.
The board of directors should do the following:
- Each director should have a DIN, which stands for “director identification number.” The Ministry of Corporate Affairs gives each director a DIN.
- One of the directors must live in India, which means he or she must have spent at least 182 days in India in the year before.
2. Name of the Company
Choosing a name for a business is usually a technical task. When choosing a name, a private limited company needs to think about three things:
- Main name
- A task that needs to be done
- In the end, it says “Private Limited Company.”
Tip: A business owner may not always be able to find the name he or she wants, since no two companies can have the same name.
At the time of registration, every company must send 5–6 names to the Registrar of Company for approval (ROC). Also, the names you send in shouldn’t be too similar to the names of other companies.
3. Registered Office Address
After the company has been registered, the registrar of the company must be given the permanent address of its registered office. The company’s main business is done at its registered office, which is also where all of the company’s documents are kept.
4. Obtaining Other Documents
Every company must get a digital signature certificate, which is used to make sure the documents are real when they are sent electronically.
Also, a company that hires professionals (secretaries, chartered accountants, cost accountants, etc.) for different tasks must make sure that these professionals have the right certifications.
Advantages of Private Limited Companies
- Limited liability: There is a limited liability in a private limited company, which means that the members of the company don’t have to worry about losing their own assets. If a business fails, the shareholders must sell their assets to pay off the debts.
- Fewer shareholders: Unlike a public company, which needs seven shareholders to get started, a private limited company only needs two.
- Ownership: Investors, founders, and management all own shares in the company. The owners are free to give or sell their shares to other people.
- Uninterrupted existence: As we’ve already said, the company stays a legal entity until it is legally shut down. The company keeps running even after a member dies or leaves.
Disadvantages of Private Limited Companies
One of the problems with a Pvt ltd company is that it needs to follow certain rules in order to shut down. Often, it ends up being too hard and takes too much time.
List of Documents Required for Private Limited Company
For a private limited company, you need the following:
- Proof of identity: PAN cards and passports for Indian and foreign directors,
- A ration card, Aadhar card, driver’s license, or voter ID are all acceptable proofs of address.
- Proof of residence: a bank statement or an electric bill for the property
- Notarized rental agreement
- NOC from the owner of the land
- A copy of the property or sale deed (for an owned property)
How to Register a Private Limited Company?
After you decide on a name for the business, do the things below:
#1: Fill out a DSC (Digital Signature Certificate)
#2: Fill out a DIN (Director Identification Number)
#3: Check to see if the name is available.
#4: Fill out the EMOA and EAOA forms to register the private limited company.
#5: Apply for the company’s PAN and TAN.
#6: The RoC will give you a certificate of incorporation with your PAN and TAN on it.
#7: Set up a current bank account in the name of the business
With this information, you’ll be ready to start your own limited company. For smooth growth, it is best to talk to the right people and make the best choice.