Arohana Legal

Arohana Legal - Buisness Logo

Private Limited Company (Pvt Ltd) – Complete Guide (2024)

Private Limited Company (Pvt Ltd) in India

What is a Private Limited Company?

What is the meaning of Private Limited Company?

Private Limited Company (also known as Pvt Ltd) is a type of business entity in India that is privately held and owned by private stakeholders. It is defined under Section 2(68) of the Companies Act, 2013. According to this section, a Private Limited Company is defined as one whose articles of association:

  1. Restrict the right to transfer its shares
  2. Limit the number of its members to two hundred (except in the case of One Person Company)
  3. Prohibit any invitation to the public to subscribe to any securities of the company

This legal structure ensures financial transparency and limits shareholder liability to the extent of shares held by them. Private Limited Companies can be further classified into companies limited by shares, companies limited by guarantee, and unlimited companies.

Characteristics of a Private Limited Company

The key characteristics of a Private Limited Company in India, as per the Companies Act, 2013, are:

  1. Membership: A Private Limited Company requires a minimum of two members and can have a maximum of two hundred members. In the case of a one-person company, it can have only one member.
  2. Directors: The minimum number of directors in a private limited company is two, while the maximum is fifteen.
  3. Limited Liability: The liability of members or shareholders in a private limited company is limited to the amount unpaid on shares held by them or the amount guaranteed by them. Their personal assets remain protected in case of any financial losses faced by the company.
  4. Perpetual Succession: A Private Limited Company has perpetual succession, which means its existence is not affected by the death, insolvency, or retirement of any of its members. The company continues to exist legally.
  5. Share Capital: The Companies Act mandates a minimum authorised share capital of Rs. 1 lakh for a Private Limited Company. However, post amendment, there is no requirement for minimum paid-up share capital, which was earlier set at Rs. 1 lakh.
  6. Transferability of Shares: The right to transfer shares is restricted in a Private Limited Company, per its articles of association.
  7. Name Suffix: The name of a Private Limited Company must end with the words “Private Limited” or “Pvt Ltd”.
  8. Prospectus: A Private Limited Company is prohibited from issuing any prospectus inviting the public to subscribe to its securities.
  9. Index of Members: Unlike public companies, a Private Limited Company is not required to maintain an index of its members.

As defined in the Companies Act, 2013, these characteristics distinguish a Private Limited Company from other forms of business entities in India and provide a unique legal structure suitable for privately held businesses.

Types of Private Limited Company

Are you thinking about starting a private limited company in India? It’s a great choice for many businesses, offering flexibility and liability protection. But did you know there are different types of private limited companies to choose from? 

Let’s break it down and explore the options.

Company Limited by Shares

This is the most common type of private limited company. In a company limited by shares, the liability of each shareholder is limited to the amount they’ve invested in the company through their shares.

Some key points about a company limited by shares:

  • Shareholders are only liable up to the amount of their unpaid shares
  • The company is a separate legal entity from its shareholders
  • Profits are distributed to shareholders as dividends

If you’re looking for a standard, straightforward type of private limited company, a company limited by shares is probably the way to go.

Company Limited by Guarantee

In a company limited by guarantee, instead of shareholders, the company has guarantors who agree to pay a fixed sum if the company goes into debt.

Here are some important aspects of a company limited by guarantee:

  • Guarantors’ liability is limited to the amount they agree to contribute
  • This type of company is often used for non-profits, clubs, and societies
  • Profits are usually reinvested in the company rather than distributed

A company limited by guarantee can be a good choice if you’re setting up a non-profit organisation.

Unlimited Companies

According to Section 2(92) of the Companies Act of 2013, the liability of the shareholders in an unlimited company is indefinite. This means that if the company cannot pay its debts, the members are personally liable.

Some things to note about unlimited companies:

  • Unlimited liability for members
  • Rarely used, as it offers less protection than other types of private limited company
  • Not a separate legal entity from its members

An unlimited company is generally not recommended due to the high risk for its members.

Private Limited Company Examples: A Closer Look

Are you curious about what a private limited company looks like in the real world? Let’s dive into some examples to give you a better understanding of this popular business structure.

Private Company Examples in India

India is home to many successful private limited companies. Here are a few notable ones:

  1. Reliance Industries Limited – A Fortune 500 company and India’s largest private sector firm, with businesses spanning energy, petrochemicals, textiles, retail, and telecommunications.
  2. Infosys Limited – A multinational IT services and consulting company that is one of India’s largest and most respected corporations.
  3. Tata Consultancy Services (TCS) – An IT services, consulting, and business solutions company that is part of the Tata Group and India’s second-largest company by market capitalization.
  4. Bharti Airtel Limited – A leading global telecommunications company with operations in 18 countries across Asia and Africa.
  5. HDFC Bank Limited – India’s largest private sector bank by assets, providing a wide range of banking and financial services.
  6. Hindustan Unilever Limited (HUL) – The Indian subsidiary of Unilever, a British multinational consumer goods company. HUL is one of India’s largest fast-moving consumer goods companies.
  7. ICICI Bank Limited – A multinational banking and financial services company, and India’s second-largest bank by assets.
  8. ITC Limited – A diversified conglomerate with businesses in FMCG, hotels, paperboards and packaging, agri-business, and information technology.
  9. Ola Cabs – A ride-hailing company that provides transportation services across 250+ cities in India.
  10. Hindustan Coca-Cola Beverages Pvt. Ltd. – Manufactures and distributes Coca-Cola products in India.

These are just a few examples of the many thriving private limited companies in India. As you can see, private limited companies come in all shapes and sizes, from small family-owned businesses to large multinational corporations to innovative startups.

Know more on the distinctions between business and a startup, the unique characteristics and operational dynamics that set them apart.

Requirements to Start a Private Limited Company

Starting a Private Limited Company in India requires meeting certain legal requirements and providing specific documents. According to the Companies Act, 2013, which governs the incorporation and management of companies in India, the following are the key documents and private limited company requirements for registering a company:

List of Documents Required for Private Limited Company

  1. Digital Signature Certificate (DSC): The proposed directors of the company must obtain a Class 2 or Class 3 Digital Signature Certificate from a certified provider. The DSC is essential for electronically signing forms and documents during the company registration process.
  2. Director Identification Number (DIN): Each proposed director must have a unique Director Identification Number issued by the Ministry of Corporate Affairs (MCA). The DIN serves as proof of identity for the directors and is required for filing various forms and documents.
  3. Proof of Identity and Address: The directors and shareholders must provide proof of their identity and address. Acceptable documents for Indian nationals include a PAN card (mandatory), passport, driver’s licence, voter ID card, or Aadhaar card. For foreign nationals, a passport is mandatory, along with a valid proof of address such as a driver’s licence, bank statement, or residence card.
  4. Proof of Registered Office Address: The company must have a physical registered office address in India. Proof of the registered office address, such as an electricity bill, rent agreement, or sale deed, must be submitted. The proof should not be older than two months.
  5. Memorandum of Association (MoA) and Articles of Association (AoA): The MoA and AoA are the two most important documents for company registration. The MoA defines the objects and scope of the company’s activities, while the AoA lays down the rules and regulations for the company’s internal management. These documents must be drafted and signed by the subscribers (initial shareholders) and witnessed.
  6. Affidavit and Declaration by Directors: Each proposed director must provide an affidavit and declaration confirming their eligibility to be appointed as a director under the Companies Act, 2013. This includes declarations regarding their DIN, non-disqualification, and consent to act as a director.
  7. Proof of Payment of Stamp Duty: Stamp duty must be paid on the MoA and AoA based on the authorised share capital of the company. Proof of payment of the applicable stamp duty must be submitted along with the incorporation documents.
  8. Shareholder Documents: If any of the shareholders is a body corporate (company or limited liability partnership), additional documents such as the Board Resolution authorising the investment, Certificate of Incorporation, and proof of registered office address must be submitted.

It is important to ensure that all the documents are duly filled, signed, and attested as required. The documents must be submitted to the Registrar of Companies (ROC) through the MCA portal for the incorporation of the Private Limited Company. It is advisable to seek professional assistance from a Company Secretary or a legal expert to ensure compliance with all the legal formalities and smooth processing of the company registration.

Registration Costs for a Private Limited Company in India

The cost to register a Pvt Ltd Company in India can vary depending on factors such as the authorised share capital and the state of incorporation. As per the Companies Act, 2013, there is no minimum paid-up capital requirement for incorporating a Pvt Ltd company.

The registration fees include costs for obtaining DSCs for directors, DINs, reserving the company name, government filing fees, stamp duty on company documents like the MoA and AoA, and professional fees for preparing and filing the incorporation application.

Some key points to note regarding Pvt Ltd company registration costs:

  • No minimum paid-up capital is mandated by the Companies Act, 2013
  • Costs include DSCs, DINs, name reservation, government fees, stamp duty, professional charges
  • Stamp duty varies by state, e.g. Rs. 1,800 per Rs. 5 lakh capital
  • Professional fees range from around Rs. 5,000 to Rs. 15,000 or higher

Timeline to Register a Private Limited Company

The typical timeline to register a Private Limited Company in India is around 10 to 15 days, subject to submission of all required documents and information to the MCA. The registration process involves several steps:

  1. Obtaining DSCs for the proposed directors
  2. Acquiring DINs
  3. Applying for name reservation for the proposed company name
  4. Drafting the MoA and AoA 
  5. Filing the SPICe+ incorporation form with the MCA along with supporting documents
  6. Getting the Certificate of Incorporation digitally signed and issued by the ROC

The MCA usually processes the application within 3-4 working days if all the submitted details are in order. The Certificate of Incorporation is then emailed to the applicant as a PDF document.

Different Company Registration Options in India

When starting a business in India, one of the first crucial decisions is choosing the right type of company registration. The Companies Act, 2013 and subsequent amendments provide several options, each with its own legal structure, compliance requirements, and tax implications.

Sole Proprietorship

Registering a sole proprietorship involves obtaining licences and permits from local authorities. It is a form of business entity, where a single individual owns and runs the company. The owner has full control over the business but is also personally liable for all debts and obligations.

Partnership Firm 

The Partnership Act, 1932 governs the formation and operation of partnership firms in India. Partners must enter a Partnership Deed that outlines their roles, responsibilities, and profit-sharing arrangement. Registration of a partnership firm is optional but recommended for legal protection.

Limited Liability Partnership (LLP)

Introduced by the Limited Liability Partnership Act, 2008 (LLP Act,2008), an LLP combines the benefits of a partnership and a company. It provides limited liability protection to its partners while allowing flexibility in management and operations. Registering an LLP requires a minimum of two partners and compliance with annual filing requirements.

One Person Company (OPC)

OPC enables a single individual to form a company with limited liability protection with a minimum of one director and one shareholder, who can be the same person. This structure is suitable for entrepreneurs who want to operate as a separate legal entity without involving multiple individuals.

Public Limited Company

A public limited company is like a private limited company but can offer its shares to the public and list on stock exchanges. It requires a minimum of three directors and seven shareholders and is subject to stricter compliance requirements under the Companies Act, 2013.

Section 8 Company

Also known as a non-profit organisation or charitable company, a Section 8 company is formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object. Profits generated by a Section 8 company are used solely for the promotion of its objectives. Registration requires a minimum of two members and compliance with the provisions of Section 8 of the Companies Act, 2013.

The choice of company registration type depends on various factors such as the nature of the business, number of owners, liability protection, compliance requirements, and long-term goals. It is essential to carefully evaluate these factors and seek professional advice to make an informed decision. The MCA website provides detailed information and online forms for company registration in India.

Why should you have a Private Limited Company?

Are you thinking about starting a business in India? One of the first decisions you’ll need to make is choosing the right business structure. And if you’re looking for a balance of flexibility, credibility, and liability protection, a private limited company might just be the perfect fit. Let’s dive into the advantages and disadvantages of private limited companies to help you make an informed choice.

Advantages

Disadvantages

Limited Liability:

Shareholder’s personal assets are protected.

Incorporation Process: 

Lengthy and complex process compared to other structures.

Separate Legal Entity: 

Can enter into contracts, own assets, sue or can be sued in its own name.

Compliance Requirements: 

Strict requirements like board meetings, register, annual returns.

Perpetual Existence: 

Continue even if ownership changes

Public Disclosure: 

Certain information must be disclosed, reducing privacy.

Easier to Raise Funds:  

More attractive to investors and banks compared to other structures.

Shared Decision-Making: 

Major decisions require consent of majority stakeholders.

Lower corporate tax rates:

Compared to personal income tax rates.

Limited number of shareholders:

Maximum of 200 members permitted.

FAQs

  • Is a private company better than a public company?

Private companies have some advantages over public companies:

  1. No obligation to reveal financial results publicly, so less short-term pressure
  2. Can keep business details private from competitors
  3. Easier to invest in long-term growth strategies
  4. More flexibility in corporate governance and accounting
  5. Owner has more control over business activities and decisions

However, public companies have better access to capital by selling shares. The best structure depends on the company’s specific goals and circumstances.

  • What are the minimum and maximum numbers of members in a private company?

In India, a private limited company must have a minimum of 2 members (shareholders). The maximum number of members is capped at 200.

The minimum number of directors is 2, and the maximum is 15 (can be increased to more than 15 with a special resolution).

  • What is compulsory for a private limited company?

Key requirements for a private limited company in India include:

  1. Minimum of 2 directors (one must be an Indian resident) and 2 shareholders
  2. Obtaining a DIN and DSC
  3. Drafting a MoA and AoA
  4. Filing incorporation forms with the ROC and paying fees
  5. Conducting board meetings and maintaining statutory registers and records
  6. Getting financial statements audited annually by a Chartered Accountant
  • What is the difference between LLP and Pvt Ltd?

Some key differences between LLP and Pvt Ltd Company in India:

Aspect

LLP

Pvt Ltd

Applicable Law LLP Act, 2008 Companies Act, 2013
Ownership Partners Shareholders
Liability Limited to capital contribution Limited to the value of shares
Management Managed by partners Board of Directors
Compliance Fewer compliances More compliances
Taxation Pass-through taxation Corporate taxation

The choice depends on factors like ownership structure, liability protection, compliance requirements, and taxation.

  • What is the minimum turnover for a Pvt Ltd company?

There is no minimum turnover requirement for a Private Limited Company in India.However, if an OPC crosses an annual turnover of Rs. 2 crores, it must be converted into a private limited company.

  • Difference Between A Shareholder And Director In Private Limited Company

In a private limited company:

  1. Shareholders are the owners of the company who invest capital and hold shares whereas Directors are elected by shareholders to manage the company’s affairs.
  2. Shareholders have limited liability and their role is limited while Directors run the day-to-day operations and have more responsibilities.
  3. Shareholders appoint directors and make high-level decisions while Directors oversee management and ensure compliance.
  4. A person can be both a shareholder and director, but it’s not necessary. One can be a shareholder without being a director and vice versa.
  • How many private limited companies are there in India?

As of 2023, there are over 1.2 million active private limited companies registered in India according to the MCA records.

  • When can a private company commence business?

A private limited company can commence business after obtaining the Certificate of Incorporation from the ROC and within 180 days of incorporation, the company must file a declaration confirming that every subscriber has paid the share value and the paid-up capital is not less than the prescribed amount.

The company must also have a registered office, minimum number of directors and shareholders, and other necessary registrations before commencing business operations.

Facebook
Twitter
LinkedIn
WhatsApp

leave a comment

Every Business is Unique.

See how tailored solutions can drive your elevation.
×