“Explore the comprehensive guide to Private Limited Companies in India, covering formation complexities, advantages, disadvantages, and common registration mistakes. Learn about limited liability, legal protection, shareholder requirements, and the pros and cons of PLCs. Gain insights to make informed decisions and successfully establish your company.”
Introduction: In the realm of business, a Private Limited Company has always been a preferred choice among entrepreneurs, especially in India. This article delves into a comprehensive understanding of private limited companies, exploring the complexities of their formation, advantages, disadvantages, and more.
A Private Limited Company can have a limited number of shareholders and is legally established with limited liability or legal protection for its shareholders.
Private Limited Companies are a form of privately held small enterprise. The liability of a Private Limited Company’s members is restricted to the number of shares they individually own. Shares of a Private Limited Company cannot be publicly traded.
Shareholders of a private limited company are individuals who hold shares in the company. A single individual may own an entire company, thereby possessing complete authority over all business-related decisions. If there are multiple owners, the number of shares each shareholder owns determines the number of votes they each have. According to company law, “persons of significant control” are those who have substantial influence over business decisions and own more than 25% of the shares. The minimum requirements are:
- Two or more directors who are at least 18 years old.
- At least one director of a private limited company must be an Indian citizen and resident.
- A company must have at least two shareholders.
- Shareholders can be natural persons or artificial legal entities.
Advantages of a private limited company (PLC) include:
Limited Liability, Separate Legal Entity, Business Continuity, Better Access to Capital, Credibility, Tax Benefits, Limited Compliance Requirements, and Control Over Ownership.
However, there are also disadvantages:
Limited Access to Capital, Legal Compliance Requirements, Limited Ability to Transfer Ownership, Greater Liability for Directors, Difficulty in Attracting Talent, and Lack of Transparency.
While registering a private limited company in India, avoid these common mistakes:
1. Not researching the company name.
2. Not having the necessary documents.
3. Not choosing the right business structure.
4. Not understanding the legal requirements.
5. Not having a clear business plan.
6. Not seeking professional help.
Conclusion: Setting up a Private Limited Company in India can indeed be a challenging task, with various legal formalities and considerations at play. However, by avoiding common mistakes and gaining a thorough understanding of the legal requirements, the process can be significantly simplified. By doing so, it is not just time and money that are saved, but also unnecessary stress and frustration. As an entrepreneur, it is critical to make well-informed decisions and take calculated steps towards the successful establishment of your company.
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This article was written by Mr. Omkar Bandivdekar (CMA Aspirant) and reviewed by Mr. Suyash Tripathi (Chartered Accountant). They can be reached at [email protected] and [email protected].
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