Private Limited Company is a most popular option to start a business in India by startups and businesses with higher growth aspirations. Private Limited Company is incorporated under the Companies Act, 2013 and governed by the Ministry of Corporate Affairs in India. It is a registered corporate structure that provides business a separate legal identity from its owners.

It can be registered with minimum of two directors and subscribers/shareholders. A person can be both a director and shareholder in a Private Limited Company.

The liability of the shareholders/members of a Private Limited Company is limited to the extent of unpaid amounts of shares held by them.

DEFINITION OF PRIVATE COMPANY [SECTION 2(68)]

“Private Company” means a company which by its articles:

  • Restricts the right to transfer its shares;
  • Limits the number of its members to 200;
  • Prohibits any invitation to the public to subscribe for any securities of the company.

PRIVILEGES TO PRIVATE COMPANIES:

1. Private Companies are not required to appoint Independent Director;

2. Private Companies are not required to appoint Woman Director;

3. Provisions regarding rotation of directors not apply on Private Companies;

4. Private Companies are not required to form Audit Committee, Remuneration and Nomination Committee;

5. Maximum Ceiling of managerial remuneration do not apply on private companies;

6. Private Companies are not required to appoint Secretarial Auditor;

7. Private Companies are not required to get their Shares/Securities dematerialized.

LIMITATIONS OF PRIVATE COMPANIES:

1. Securities of Private Companies are not freely transferable;

2. It is very difficult for private companies to access external financial assistance;

3. Securities of a private company are not listed on stock exchange, Therefore a shareholder/security holder cannot know the real value of his investment in a private company;

4. Public has little confidence in a private company because its affairs are unknown and it is not subject to strict control under the law;

5. In a Private Limited Company the number of shareholders in any case cannot exceed 200;

6. Private Companies cannot issue prospectus to public.

 DIFFERENCE BETWEEN PRIVATE COMPANY AND PUBLIC COMPANY:

S No

Basis of Difference

Private Company

Public Company

1. Minimum Number of Members

2

7

2. Maximum Number of Members

200

Unlimited

3. Minimum Number of Directors

2

3

4. Suffix with Name

Private Limited

Limited

5. Issue of Prospectus

Cannot Issue Prospectus

Can Issue Prospectus

6. Public Subscription

Not allowed

Allowed

7. Share Transferability

Restricted

Freely Transferable

DIFFERENCE BETWEEN PRIVATE COMPANY AND ONE PERSON COMPANY:

S No Basis of Difference Private Company One Person Company
1. Minimum Number of Members

2

1

2. Maximum Number of Members

200

1

3. Minimum Number of Directors

2

1

4. Holding of AGM

Compulsory

Not required to hold AGM

5. Filing of Financial Statements

(Form AOC-4)

Within 30 Days from the date of Holding of Annual General Meeting Within 180 days from the end of financial year.
6. Filing of  Annual Return

(Form MGT-7)

Within 60 Days from the date of Holding of Annual General Meeting Within 180 days from the end of financial year.
7. Conversion into Section 8 Company A private company can be converted into Section 8 Company An OPC cannot be converted into Section 8 Company
8. Foreign Nations Foreign Nations can become member/Shareholders in Private Company Foreign Nations cannot become member/Shareholder in OPC

FEATURE AND ADVANTAGES TO REGISTER A PRIVATE LIMITED COMPANY

1. SEPARATE LEGAL EXISTENCE:

A Private Limited Company is a separate legal identity in the eyes of the law. It means assets and liabilities of the business are not same as the assets and liabilities of the directors and shareholders. Both are considered as different.

2. LIMITED LIABILITY:

If the company undergoes financial distress, the personal assets of members/shareholders cannot be used for paying the debts of the Company.

3. FUNDING

A Private Limited Company can raise equity share capital as well as preference share capital from persons or entities interested in becoming  shareholder of such company. Private Limited Company can raise money easily from Banks, Financial Institutions, Angel Investors, venture capital firms, private equity firms etc.

4. MANAGEMENT AND OWNERSHIP SEPARATION

The shareholders assign responsibility to operate and run the company without losing control in the form of voting.

MINIMUM REQUIREMENTS TO REGISTER PRIVATE LIMITED COMPANY:

 1. UNIQUE NAME OF COMPANY:

The proposed name of the company should be unique one and should not be similar or identical with an existing company or LLP or Registered Trademark.

2. MINIMUM TWO PERSONS:

A Private Limited Company can be registered by at least two persons, who shall act as the shareholders and Directors of the company and out of which at least One director must be resident in India.

3. CAPITAL REQUIREMENTS:

There is no requirement of minimum Paid up capital to register a Private Limited Company. Investment can be made as per requirements of business.

4. MAIN OBJECTS OF THE COMPANY:

To describe business activities of the company, main objects of the company must be specified before formation of company.

PROCEDURE FOR INCORPORATION OF PRIVATE LIMITED COMPANY:

1. Filing of Application for Reservation of Name:

An application for reservation of name of the Private Limited Company shall be made in RUN Form by paying Govt. Fee of Rs. 1000/-. Maximum Two Names may be applied in RUN Form, If the name(s) applied are unique one and are not Identical/Similar with an existing Company/LLP/ Trademark then MCA shall reserve the same for 20 days otherwise the RUN form filed shall be sent for re-submission and we can apply two new names by re-submitting the RUN form in above mentioned Govt. Fee of Rs 1000/- which has already been paid by us.

However one name can directly be applied in form SPICe-32. This option should be availed in such a case where the applicant is sure that the name being applied is unique one and not similar/identical with existing Company/LLP/Trademark.

2. Obtaining Digital Signature Certificates (DSC):

After approval of name of proposed company, the next step is to obtain DSC of all the proposed first directors and subscribers.

3. Preparation of Incorporation Documents:

On the basis of KYC documents and various information received from proposed first directors and subscribers, documents are prepared for incorporation of Private Limited Company.

4. Filing of Various E-Forms for Incorporation of Private Limited Company:

The E-forms mentioned here under are filed with MCA for incorporation of Private Limited Company.

  • SPICE FORM 32: The Following details and information in SPICe Form 32 Shall be filled:
  • Name of proposed Company;
  • Full Address of registered office and correspondence address;
  • E-mail ID, Telephone Number, Fax Number, if any of the proposed company;
  • Authorized and Subscribed Capital of the company;
  • Basic details of subscribers and First Directors such as their Name, Father`s Name, Date of Birth, Pan Card Number/ Aadhar Card Number/DL/Passport Number, Nationality, Occupation, Place of Birth, Residential Status, E-mail ID, Telephone Number, Present Address, Permanent Address, Duration of Stay at present address, Number of Shares Subscribed and designation and category of First Directors.
  • Information specific to PAN such as Area Code, AO Type, Range Code, AO Number. etc for allotment of Pan Card Number of Company;
  • Information specific to TAN such as Area Code, AO Type, Range Code, AO Number. etc for allotment of TAN of Company;
  • Source of Income of the Company viz. Income from Business and Profession, Capital Gain, Income from House Property etc;
  • Declaration from Practicing Professional certifying the form that all the requirements of the Companies Act, 2013 and rules made there under regarding incorporation have been complied with.

Attachments of SPICe Form 32: Following documents shall be attached in SPICe form 32:

Particulars

Subscribers & First Directors Having DIN

Subscribers & First Directors not Having DIN

DIR-2 duly signed by all First Directors.

Required

Required

Copy of Pan Card of First Directors and subscribers.

Not Required

Required

Copy of ID Proof (viz. Aadhar Card/DL/Passport/Voter ID, any one) of First Directors and subscribers.

Not Required

Required

Copy of Address Proof (viz. Bank Statement/Electricity Bill/Telephone Bill/Mobile Bill, any one) of First Directors and subscribers.

Not Required

Required

Lease Deed/ Rent Agreement/Registry of the premises of Registered Office.

Required

Required

Utility Bill (Not older than 2 Months) of the premises where registered office of the company is to be situated such as Electricity Bill/Water Bill/Gas Bill etc.

Required

Required

NOC from the owner, in whose name the premises of the registered office is registered.

Required

Required

However if the correspondence address and registered office address of the proposed company is different, in such a case the company may be incorporated with its correspondence address only and the company is not required to attach the following attachments with form SPICe 32:

  • Lease Deed/ Rent Agreement/Registry of the premises of Registered Office;
  • Utility Bill (Not older than 2 Months) of the premises where registered office of the company is to be situated such as Electricity Bill/Telephone Bill/Mobile Bill/Gas Bill.
  • NOC from the owner, in whose name the premises of the registered office is registered.

In the above mentioned case the company shall file form INC-22 within 30 days from the date of its incorporation for verification of its Registered Office, attaching the above mentioned attachments.

  • FORM INC-33 (SPICe+MOA): This form contains the following particulars/information:
  • Name of the Company;
  • Name of the State in which Registered Office of the Company is to be situated;
  • Objects of the Company;
  • Liability of the members of the company (Whether Limited by Shares/Limited by Guarantee/Unlimited)
  • Share Capital of the Company;
  • Name, Father`s Name, Address, Description and Occupation of Subscribers of MOA and witness;
  • FORM INC-34 (SPICe +AOA): This form contain regulations for management of the company.
  • E- Forms INC-9:

Declaration by First Directors and subscribers is filed by this form. No document is attached in this form. This form is filed only after affixing DSC of first directors/subscribers.

  • E-Form INC-35 AGILE PRO:

Application for registration under Goods and Service Act, 2016 (GST), PF Registration, ESI Registration and Opening of Bank Account is made through this form.

Attachments of E-Form INC-35 AGILE: Following documents are attached in this form:

  • Proof of Identity of Authorized Signatory for Opening Bank Account;
  • Proof of Address of Authorized Signatory for Opening Bank Account;
  • Specimen Signature of employers [viz. Directors] for EPFO;
  • Passport size photos of all first directors.

5. Issue of Certificate of Incorporation:

Registrar shall verify the filed forms and their attachments and if the filed forms are proper and fulfills the requirements of Companies, 2013 and rules made there under regarding incorporation of company, then he shall issue Certificate of Incorporation.

FREQUENTLY ASKED QUESTIONS

Q.1 Is it necessary to have DIN and DSC for filing of RUN Form?

Ans. No, DIN and DSC are not necessary for filing of RUN form for reservation of Name of company.

Q.2 How many DIN are allotted by SPICe Form?

Ans. Maximum 3 DIN are allotted by SPICe form, So maximum three Individuals not having DIN can become first directors in the proposed company.

Q.3 What to do, if there are more than 3 first directors and subscribers and all of them have no DIN?

Ans. In such a case all the Individuals can become subscribers to the MOA but only three Individuals can become first directors because Form SPICe 32 allows to allot DIN to only 3 directors. Therefore in the above mentioned situation 3 individuals can become first directors and other individual can be appointed as directors after its incorporation.

Q. 4 What are the pre-conditions for incorporation of Private Limited Company?

Ans.

  • There should be Unique Name of the company;
  • There should be Permanent Registered office of the company;
  • There must be at least 2 directors and out of which at least one director must be resident in India
  • There must be at least 2 subscribers to the MOA.
  • Requirement of DSC of all the subscribers and First Directors.

Q.5 Can the registered office of the company be situated on residential property?

Ans. Yes, registered office of the company can be situated on residential property.

Q.6 Can Foreign Nationals, NRIs and Foreign entities incorporation Company in India?

Ans. Yes, Foreign Nationals, NRIs and Foreign entities can incorporate company in India but at least one director must be resident in India in the Board of the company.

Q.7 What is the minimum capital requirements for incorporation of Private Company?

Ans. There is no minimum and maximum capital requirements for incorporation of a Private Limited Company.

Q.8 Do Certificate of Incorporation issued needs to be renewed?

Ans. Certificate of Incorporation once issued need not to be renewed. It is valid till the company struck off or wind up.

Q.9 Is Statutory Audit of Private Limited Company is compulsory, where the company was not in operations during the previous financial year?

Ans. Yes statutory Audit of Private Limited Company is mandatory, even if it was not in operations during the previous financial year.

Author Bio

Qualification: CS
Company: JANGID R & ASSOCIATES
Location: JAIPUR, Rajasthan, India
Member Since: 24 Feb 2021 | Total Posts: 11
CS RADHE SHYAM JANGID is a Practicing Company Secretary and Sole Proprietor of M/s Jangid R & Associates (a Jaipur Rajasthan based firm of Company Secretaries). He is offering his expertise and experience in the field of Corporate Laws, IPR, Taxation, DGFT, Labour Laws, NCLT and Legal Due Dilig View Full Profile

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