Private Limited Companies are those companies which are privately held by the people. They are mostly preferred as a common business organization in India. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. The main characteristics of a company are as follow:
1.
Minimum 2 and maximum 200
members are required in Private Limited Company.
2.
It shall be started with minimum paid-up capital of Rs.1,00,000
3.
It shall have minimum two
directors.
4.
Transfer of share can be
restricted as per Articles of the company.
5.
It can take loan from
shareholders, directors and relatives of directors but not from the public.
Shares cannot be issued to public.
6.
Reduced compliance burden
as per company law.
7.
The words 'Private Limited'
should be suffix or must come after the name of company. Many of the
restrictive provisions of Companies Act are not applicable to Private Limited
Company allowing flexibility and convenience unlike Public Limited Company.
Types of Private Limited Company
In
accordance to the varying level of liability to the shareholder and other
members, promoters can choose to have different type of Private Limited
Company. Types
of Private Limited Company are as follow:
Company Limited by Shares
|
Company Limited by
Guarantee
|
Unlimited Companies
|
In this the liability of the
members is limited by the memorandum to the amount i.e. paid up share capital,
if any, unpaid on the shares respectively held by them.
|
The liability of members is
limited to such amounts as they may respectively undertake by the memorandum
to contribute to the assets. However, in
case when the company is winding up its business, they may be asked to pay
for the liabilities.
|
There is no limit
to the liability on members. The liability covers the entire unpaid amount,
debts and other payables. If company wound up, the creditors can enforce its
shareholders to pay for the company debts and liabilities. Since it is still
a separate legal entity, hence members of unlimited company cannot be sued
individually.
|
Advantages of a
Private Limited Company
·
Limited Liability:
As business entity grows, the need for funds grows too. Hence, businesses have to
borrow funds. In private limited company, the extent of liability is limited to
the amount invested in starting the business. They are not personally liable to
pay the debt.
·
Access to Funding:
Private limited companies easily accommodate equity
funding through venture capitalist, angel investors as they are unlikely to
invest in any other structure.
·
Debt-taking Capacity:
A private limited company can take funds from Banks,
debentures and convertible debentures.
·
Greater Credibility:
They have greater credibility as they have to inform about the structure,
directors, members, Article and Memorandum of Association and necessary changes
to the Ministry of Corporate Affairs. Such information is available in internet
in public domain making the business entity more credible as compared to partnerships and proprietorships
·
Easy Exit:
Private limited companies can be sold
or transferred, either partially or in full, to another individual or entity
without any disruption to the current business.
·
Capital:
More capital can be raised
as there is no limit on number of shareholder.
·
Business
startup:
Minimum number of
shareholders need to start the business are only2.More capital can be raised as
the maximum number of shareholders allowed is 50.
·
Continuity of
existence:
Business is not affected
by the status of the owner. It continues to be remain in existence.
·
Brand
Value:
Company’s brand value will
get increased because people come to know about the company very well.
·
Tax Advantages:
Private limited companies enjoy tax advantages. These
companies pay corporation tax on their taxable profits and tend to be exempt
from higher personal income tax rates. It opens the door to more tax-deductible costs and allowances
redeemable against profits.
·
Managing Shareholder Affairs:
a)
Transfer of Shares: Shares in any form of Company are normally freely
transferable. However, in a Private Company the articles can lay down certain
restrictions and also the methodology in which they can be transferred.
b)
Convening General Meetings: A PLC necessarily has to give a notice of 21 clear
days for conducting any general meeting, unless all the shareholders agree for
a shorter notice. However, in case of a Private Company the articles can
determine the period of notice, which is required for convening a general
Notice, as well as the percentage of shareholders to consent for a meeting to
be convened at a shorter notice.
Disadvantages of a
Private Limited Company
·
The shares cannot be
sold or transferred to anyone else without the agreement of other shareholders.
·
In PLC no one is
allowed to invite public to subscribe to its shares.
·
The Growth may be
limited because maximum shareholders in a PLC are only 50.
Private Limited Company - Incorporation
Any
Company Registration start with indentifying the pre-requisites for
incorporation and processing required documents for filing with concerned
Registrar of Companies. Pre-requisites for company registration area s follow:
a)
Shareholders (Members)
Minimum Two Persons required.
Maximum members can exceed up to 200.
Member can be individual, LLP or any
registered company
b)
Directors
It shall have minimum Two Directors.
One of the directors must be Resident in
India, i.e., stayed in India not less than 182 in the previous calendar year.
Proposed Directors shall have a Director
Identification Number (DIN) issued by the Ministry of Corporate Affairs.
c)
Company Name
It consists of three parts i.e.
The Name Activity (Signify the industry)
Private Limited Company.
The Registrar of Companies shall approve the
name of company.
Minimum Share Capital- the Company shall have
Rs 100000.
d)
Registered Office Address
At the time of registration of Company,
temporary address along with the address of any of the directors can be provided.
Although, after registration the company has to file the permanent business
address with documentary proof of address, ownership etc.
e)
Company Objects
Objects of the Private Limited Company refer
to proposed business activities. Private Limited Company objects shall be legal
and shall not misuse or harm the society.The name of Company shall also signify
the main, prerequisite objects. If the name of the Company is not describing a
particular object, then the Company can have multifaceted objects. The objects
are described under a Clause in Memorandum of Association of the Company.
f)
Digital Signature Certificate (DSC)
All documents are filed online with Registrar
of Companies. Digital Signature certificate is the ultimate way to verify the
authenticity of document. Hence, all the documents shall be authenticated by
using a Digital Signature Certificate of the Director.
g)
Professional Certification
Services of professionals such as Chartered
Account, Company Secretary, Cost Accountant is required to make necessary
Certifications and declarations for incorporation of a Private Limited Company.
Incorporation of a
Private Limited Company Process
A private
limited company is most common form of
business entity in India. It is easy to maintain and raise funds, offers
limited liability to its members, offer flexibility, easy bank loan
accessibility. Following are the steps
involved in the incorporation of private limited company
1. Obtaining Director Identification Number
(DIN) & Digital Signature Certificate
The First step is
ü
Obtaining Director Identification Number (DIN) for
the proposed Directors in the Company. Documents regarding the same are
Identity proof,
address proof, photograph, current occupation, email, no. education
qualification, verification to be signed by the applicant.
2. Applying for the
name
The promoters should propose one or more
suitable name for the company but registrar have to select the name in case
some names are identical or similar to registered business entities or
trademark
ü
The name should not be similar or identical to any registered company or
trademark.
ü
The name should not be one prohibited under the ‘Emblems and names Act,
1950’.
ü
The name of company must have suffix “Private limited Company “.
After submission of name, registrar will
review and approve one of the name .It usually takes 3 to 5 working days to
approve the name for company.
3. Drafting of MOA
and AOA
MOA is the Memorandum of Association which
covers the important provision of the company’s constitution. AOA contains
rules and regulations governing the internal management of the company. It is
the binding contract between the members of the company.
For drafting these, subscribers specify the
name, occupation, address and sign the subscription pages of the MOA and AOA.
4. Filing for Incorporation of Private Limited
Company
§ After the name approval, promoters should
submit the application, prescribed fees and below said following documents to
the registrar.
§ Declaration from Directors
§ Affidavits of the Directors
A declaration states that the requirements of the Act and the rules
framed there under have been compiled with. This declaration is required to be
signed by an advocate of the or Supreme Court or an attorney or a pleader
having the right to appear before or a High Court or a Chartered Accountant in
whole time practice in India who is engaged in the formation of a company, or
by a person named in the Articles as a Director, Manager or Secretary of the
Company.
Besides the aforementioned documents, the company must
provide relevant information regarding of its registered office
within 15 days of registration or during filing of incorporation
documents.
5. Subscribing to
the Private Limited Company
As per the Companies Act 2013, subscriber must sign their names and must
be subscribed to the shares of company incorporated. It means each subscriber
must have at least one share of the company. Each subscriber should sign the
memorandum in presence of at least one witness and must clearly state the following:
·
Address
·
Personal Description
·
Occupation
·
No of shares subscribed
·
Nature of shares etc.
Likewise, article of association should be
signed. Both (Article and Memorandum of association) must be duly signed and
stamped.
6. Certificate of
Incorporation of Private Limited Company
After filing the above mentioned documentsand
payment of necessary fess, the certificate for incorporation would be issued by
the Registrar of Companies. Upon Incorporation, the company becomes a legal
person separate from its incorporators.
Author:
This blog is written by Ms. Chanchal
Sharma, a passionate blogger of Aapka Consultant.
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