Overview: Private Limited Company
A private limited company is an organization that offers some of the advantages of larger corporations, but with more flexibility and fewer regulations. Private limited companies differ from public limited companies in that they cannot offer shares on the open market.
Private limited company registration is the most preferred choice for most the business people
It is a type of business entity that offers limited liability and limits the number of shareholders to 50. It is easy to form and provides more flexibility for operations as compared to other forms of business.
Let us move further and learn the details of a private limited company.
What Is A Private Limited Company?
A private limited company is a business structure that is not public and restricts the transferability of shares, does not offer shares to the public, and limits the number of shareholders to 50.
There are three types of private limited companies, these are-
1. Company limited by shares-
In a company limited by shares, the shareholder’s liability is restricted towards the unpaid amount on their shares or as mentioned in the memorandum of Association. In the further course of business, no shareholder is requested to pay more than the unpaid amount. They are only liable to the calls unpaid by them.
2. Company limited by guarantee-
Company limited by guarantee is a type of private limited that limits its member’s liability till the amount they will contribute at the time of winding up as already registered in the Memorandum of Association.
This type of company is often registered as a NOT-FOR-PROFIT organization or for charity purposes. You can read more about companies limited by shares.
3. Unlimited Liability company-
A type of corporation where members’ liability is up to the company’s debts and liabilities. Creditors can ask for repayment of their debts even from the shareholders if the company fails to do so.
You must be wondering why the unlimited company is even regarded as a company despite not having the special features of a company? I.e. SEPARATE LEGAL ENTITY, right?
The unlimited company even though is called a separate legal entity and thus no shareholder is responsible for others’ behavior and cannot sue them.
Read More: Limited Liability Company
Now let’s move on to the features of a private limited company.
Features Of A Private Limited Company
- The number of members and shareholders– to begin with, a private limited company, you should have at least 2 members, to begin with, and a maximum of 200 as per the companies act. And as far as shareholders are concerned, maximum 50.
- Limited liability– The liability of the members depends upon what they’ve agreed to or the number of shares they own and the money unpaid on them. The shareholders/members and the company are separate legal entities.
- Perpetual succession- The company is formed by law and thus can be dissolved only by law. Thus the company continues to live even if its members die or retire.
- Name– Private limited companies are required to put limited at their end.
- Paid-up capital– Paid-up capital is not specified in the recent amendments (Nov 21).
Procedure For Registering A Private Limited Company
Registering any company is a tedious and difficult task. Here are some steps that would help you with the map of registering a company. But still, it’s preferable to communicate the problems with specialized professionals to ease out the task.
Here’s a roadmap-
- Apply for a name for the name of the company.
- The next step is to apply for the DIN (director incorporation certificate) and digital signature certificate.
- File the company’s memorandum of association and articles of association with other necessary documents to the registry.
- After the registry is confirmed, it will issue you an incorporation certificate.
- After all these details, you need to open a bank account in your company’s name.
But just for your information these steps look easy when written but get extremely tedious, time-consuming, and confusing. So to get better results Odint consulting is here for your rescue!
Book a call right now and see how the experts at odint will make the process feasible, easier and less complex for you plus tailored according to your needs.
Now, let’s look at some of the advantages and disadvantages of a private limited company.
Advantages Of Private Limited Company
1. Constrained liability-
As compared to a sole proprietorship, private companies are benefitted from constrained liabilities. This means that shareholders and companies are separate legal entities. The shareholders are not called out for the companies liabilities unless it is a company limited by guarantee.
This makes it very beneficial for private company shareholders to invest and earn higher returns without worrying about unlimited liabilities.
2. Limited however simple trade of shares-
Public companies can list their shares on a stock exchange and earn huge funds from the public. This is not the case with private companies as they are restricted from doing so. However, trading in shares is a much simpler process in a private company as compared to that of public companies.
The trading compliances are less and easier in private companies rather than in public companies.
3. Continued Existence-
Private companies work on the principle of perpetual succession. That means, continued existence! Even if the shareholders die/quit/retire the company remains to exist.
A company is born by law and only law can dissolve it and nobody else. Therefore, private companies enjoy the freedom of perpetual succession, unlike a sole proprietorship.
4. Tax reductions-
If you are thinking that corporates have to pay a lot of tax then you might be wrong. Because in the case of private companies, there are many ways to reduce tax and take benefit of lower tax schemes or incentives given by the world and respective governments.
5. Insulated property-
Private companies on their own can purchase or sell any asset or property. A company in the eyes of law is a legal personality and can have any assets or liabilities of its own.
But the thing to note here is that the company’s property or assets can not be owned by any of its investors and the same applies to the company too. None of the shareholder’s property belongs to the company.
6. Fundraising-
Private limited companies are authorized to fund money on its name to invest in the business. Therefore, private limited companies can fund such money in the form of the private placement, bonus issue, or right issue. It is also easier for private companies to take funds from banks or such funding institutes.
7. Owning property-
A public company is a legal entity and can acquire properties in its own name. Not just that, it can sue and be sued by any third party as well. The shareholders and company are two different people and the owner of such property is always the company.
Number of members
As per the companies act, the number of members in a private company is restricted to 200 only. However these 200 members are exclusive of,
- Persons who were in the employment of the company before.
- Persons who are in the employment
- Wo are members of the company or joint owners
How Odint Consulting Can Help You Register A Private Company?
Odint consulting has a group of professionals that are proactive and listen closely to your problems to offer you a tailor-made solution. registering a private company is a tough process and not to forget involves a lot of compliance as well.
But with the help of our team at ODINT consulting you can easily focus on your business while you leave the pressure of business registration at us. We have helped individuals from all across the world to set up companies and ease the process.
We would love to have your problems solved. Contact us here!
Conclusion
A private limited company is not a public company and restricts its transferability of shares. It gives benefits to companies while limiting the liability of its shareholders.
This is a great benefit to the shareholder as it allows them to invest and carry out business activities without the fear of running into losses and not being able to recover their debts.
There are certain advantages and disadvantages related to a private limited company.
All these information can overwhelm you a bit but Odint Consulting can make the process smoother and more efficient for you!
FAQ’s
There are three things to keep in mind,
- There are a minimum of 2 people
- There must be 2 directors as well
- Each director should hold a valid DIN.
Ye,s there can only be 50 directors and a maximum of 200 shareholders in a private company.
Yes, it is very much mandatory to file MOA and AOA while registering a private limited company or any such company in that matter.