PRIVATE LIMITED COMPANY
According to the Companies Act, 2013, a private limited company is a company whose article of association restricts the transferability of shares and prevents the public from subscribing to them. This is a distinct feature that differentiates private limited companies from other types of public companies.
A private limited company is a company usually held for a small business. The liability of the members of a private limited company is limited to the amount of shares respectively held by them.
WHO CAN SET UP AND RUN A PRIVATE LIMITED COMPANY?
A private limited company can have a minimum of two directors and a maximum of fifteen directors. In addition, at least two shareholders can have a legal distribution of shares of a private limited company. A total number of two hundred shareholders is acceptable.
Similarly, it requires at least two directors to manage a private limited company. They can be shareholders of the company. According to Section 2(68) of the Companies Act, 2013, any private limited company may have paid-up capital of 1 lakh rupees minimum or higher, which is specified by the government.
HOW TO REGISTER A PRIVATE LIMITED COMPANY?
- Apply for a digital signature: – It is a digital equivalent of a physical signature and is a requirement for all directors and shareholders. Only authorized personnel can use such signatures.
- Apply for a director identification number (DIN): – The ministry of corporate affairs allots this 8-digit number to the person who wants to be the director of the company. It is a unique digital identity assigned to a director linked with the person’s corporate Endeavors, information, and services on the internet.
- Check for availability of the company Name: – Before registering your company, check if the name you want for the company is available for registration. You can check it on the website of the Ministry of Corporate Affairs (MCA) state business filing agency portal.
- Provide the required documents to the ROC: – Once you get the approval for your company’s name, you can send all required documents to the registrar of companies (ROC). The ROC issues a certificate of incorporation and sends you a physical copy of the same.
- File the MOA and AOA: – The next step is to file a memorandum of association (MOA) and an article of association (AOA). This is mandatory to register a private limited company.
- Issue a PAN and TAN: – Issue a permanent account number (PAN) and a tax deduction and collection account number (TAN) with the formation of the company. Note that the process for acquiring PAN and TAN numbers for private limited companies requires registration for GST and provident fund as well.
- Open a bank account: – This is the final step of the registration process. Open a bank account with the company’s name to carry out all the major transactions of the company.
TYPES OF PRIVATE LIMITED COMPANY
- Company limited by Shares: – In these companies, the member’s liability is limited to the nominal share amount as mentioned in the Memorandum of Association. The shareholder cannot be held liable or asked to pay more than his/her share capital invested in the company.
- Company limited by Guarantee: – In a private limited by guarantee, the members’ liability is limited to the amount of liability each member undertakes in the Memorandum of Association Consequently, members of a private Limited company Limited by Guarantee cannot be held accountable for a sum greater than the amount of guarantee performed by the member in the Association Memorandum.
- Unlimited Companies: – Unlimited Corporations are those types of businesses that have no restrictions on their members’ liability each members’ liability extends over the entire amount of the company’s debts and liabilities. Hence, an unlimited company’s creditors have the right, if wound up, to impose the company’s debt and liabilities on shareholders.
DOCUMENTS REQUIRED FOR INCORPORATING A PRIVATE LIMITED COMPANY.
- Self-attested Copy of Pan Card/ Aadhar Card of Directors/Subscriber
- Passport Size Colour Photograph
- Address Proof: (any one document)
- Telephone Bill
- Gas Bill,
- Electricity Bill
- Bank Statement
- Identity Proof: (any one document)
- Passport
- Voter ID
- Driving License
- Contact Details of Directors (E-mail Id and Mobile No.)
- Current Month Electricity Bill/Water Bill of Registered Address
- Rent Agreement (If rented)
- NOC from owner of the Registered Address
- ESI/EPFO Declaration (Drafted by us)
Key Differences between a Proprietorship Firm and a Private Limited Company
Basis of classification
Proprietorship firm
Private limited companies
Incorporation
No formal incorporation procedure.
Incorporation is mandatory under the Companies Act,2013
Name Approval
There is no requirement for name approval.
Name approval is compulsory while incorporation. Every private company’s name must end with ” Pvt. limited “.
Legal Status
A proprietorship firm has no separate legal status.
A private limited company is a separate legal entity.
Liabilities
The owner is liable for the company
The liability of shareholders is limited by shares. The liability of the director is different from those of a company.
Members
There is only one member, i.e., the owner of the company.
The minimum number of members required for a private limited company is two, and the maximum number of members is 200.
Transferability of shares
There is only one member, so there is no concept of shares in the case of a proprietorship firm.
The shares are non-transferable to the public.
Existence of the company
The existence of the proprietorship firm is entirely dependent on the owner.
A registered private limited company has perpetual succession, and thus the existence of the company is separate from its members.
Compliances and regulations
The Companies Act, 2013 does not provide compliance rules for a proprietorship firm.
The Companies Act,2013, governs a private limited company.
Taxes levied
The owner of the proprietorship firm must report all their income details along with the business profits and losses. The firm, per se, does not have to pay separate taxes.
The taxes on a private limited company and its directors are separate.
Conclusion:-
An individual must be cautious before choosing the kind of entity.
- They should be very careful and analyze all the options in front of them. Every company has some pros and cons.
- If individuals want less accountability, simple procedures, fewer tax burdens, they should go for a Proprietorship firm. Still, if the individual is ready to face credibility, transparency, strict compliance, they can opt for a private limited company.
- It also depends on the long-term goal of the individual; if they want to expand their business in the future, then it’s always better to start a registered private limited company under the Companies Act, 2013. Still, if the goal is to run a small business with less burden and formality, a proprietorship firm is the best option for them.
