To start a small-sized business in India, setting up a private limited company is highly recommended. A company that is owned privately for the purpose of carrying out small or medium-sized businesses is called a private limited company. In a private limited company, the extent of the liability of the members is proportionate to the number of shares held by them. Publicly trading shares of a private limited company is not allowed.
Important features of a Private Limited Company
Number of Members
To initiate a company that is in private ownership, a minimum of 2 members and a maximum of 200 members are allowed according to the guidelines of the Companies Act 2013.
Liability is Limited
In such a company each shareholder has a liability to a limited extent which implies that in case a company has to bear losses, each shareholder has to sell their own assets to get paid. The assets owned personally by a member are not at risk.
A company will exist according to the Law, even if there is a case of bankruptcy or death of any of the members or a member becomes insolvent.
Maintain a member index
A private company is not required to maintain an index for its members, unlike a public company.
A private company can have only 2 directors and can come into existence.
No prospectus required
Since the public is not involved in the subscription of shares of a private company, it does not need to issue a prospectus. A Prospectus states the affairs of a company in detail for the public by the Company.
Minimum subscription or capital contribution
This is the amount that a company receives and it is equivalent to 90% of the shares issued in a given time period. But in the case of a public limited company, allotment of shares to the public can be done without getting the minimum subscription.
For all the private limited companies, it is compulsory to have the words private limited in their name. The name needs to be unique.
Conditions to be fulfilled for registering a Private Limited Company
- Shareholders need to be between 2 to 200
- Minimum 2 Directors
- The words private limited need to be there in a company name
- A permanent address of its registered office
- Procure a digital signature certificate
- Certification by a Chartered Accountant, Cost Accountant, etc. when the company is being formed
Advantages of getting a Company Registration done
- Build a better customer base
- To avail good deals on loans from banks and better investment deals from trustworthy clients in an easier way
- Protection of assets and liability
- Better stability and more contribution of capital
- Better scope of growth and expansion
Documents Needed for Registration
The Registration process is incomplete without proof of address and proper identity.
- For identity and address proof
- A copy of PAN card or passport(for NRIs and foreign nationals)
- A copy of passport/driving license/voter ID
- A copy of the latest bank statement/mobile or electricity bill
- A passport-size bank signature
The documents required as a registered office proof
- A copy of the latest bank statement
- A copy of the rental agreement by a notary
- A no–objection certificate from the owner of the property
- A copy of the property deed
Why Private Limited Companies are better?
- Sale of shares by the choice of owner
- The number of shareholders is just 2
- Lesser legal formality involved
- Need not disclose information
- Decision-making is easier
- Flexibility in planning business growth
- Not influenced by the stock market
- Focus on long-term goals
- The minimum share capital requirement is not there
- Confidential information is more secure
Based on the above features, we can say that the incorporation and functioning of a private limited company are much simpler as compared to a public company. It is cost-effective, and it takes less effort to set up. It is less time-consuming too.