What is Private Limited Company in India? Complete Guide

A private limited company is a favored business structure in India, offering significant advantages such as limited liability, a separate legal entity, and ease of raising capital. This detailed guide explores the key aspects of private limited companies in India.

Understanding the Companies Act

The Companies Act, 2013 governs the incorporation, regulation, and dissolution of companies in India. Replacing the Companies Act, 1956, it brought substantial changes to enhance corporate governance and compliance, emphasizing transparency, accountability, and investor protection. Key features include:

• Simplified Procedures: Streamlined company registration and compliance processes.
• Enhanced Corporate Governance: Stricter regulations for board composition, auditor appointments, and financial disclosures.
• Investor Protection: Measures to safeguard shareholders’ interests.
• Ease of Doing Business: Facilitates business operations through digital processes and reduced bureaucratic hurdles.

Defining a Private Limited Company

A private limited company (Pvt Ltd) in India is a privately held business entity suitable for small businesses. This structure limits shareholders’ liability to their shares and restricts the number of shareholders to 200. Key characteristics include:

• Limited Liability: Shareholders’ liabilities are limited to their shares.
• Separate Legal Entity: The company operates independently of its members.
• Perpetual Succession: The company continues to exist despite changes in membership.
• Membership Requirements: Minimum of 2 and maximum of 200 members.

Definition:

Section 2(68) of the Companies Act, 2013 defines a private company as follows:

“Private company” means a company that:

• Has a minimum paid-up share capital as prescribed by the Act.
• Restricts the right to transfer its shares through its articles of association (AoA).
• Limits the number of its members to two hundred (except for One Person Companies). However:

1. Two or more people holding shares jointly are counted as a single member.
2. Employees (current and former) who were members while employed are not counted towards the member limit.

• Prohibits any invitation to the public to subscribe to its company securities (stocks or bonds).

Who Can Register A Private Limited Company in India

Here are the categories of entities or individuals who can register a Private Limited Company (Pvt Ltd) in India:

1. Individuals: Any individual, whether Indian resident, foreign national, or non-resident Indian (NRI), can register a Pvt Ltd company in India.
2. Foreign Nationals: Foreign nationals who wish to start a business in India can also register a Pvt Ltd company, subject to compliance with Indian laws and regulations.
3. Existing Companies: Existing companies, both domestic and foreign, can establish a subsidiary or branch office in India by registering as a Pvt Ltd company.
4. Startups: Startups, regardless of the industry or sector, are eligible to register as Pvt Ltd companies in India. This structure provides limited liability and other benefits conducive to business growth.
5. Entrepreneurs: Entrepreneurs, whether individuals or groups, looking to formalize their business operations and enjoy the benefits of a corporate structure can opt for Pvt Ltd company registration.

Minimum Requirements for Registering a Private Limited Company in India

To register a private limited company, the following requirements must be met:

Directors

• Minimum Number: At least two directors are required.
• Resident Director: At least one director must be a resident of India.

Shareholders

• Minimum Number: A minimum of two shareholders is required.
• Director as Shareholder: Directors can also be shareholders.

Capital Requirements

• Authorized Capital: No minimum requirement, but typically set at ₹1 lakh.
• Paid-up Capital: Must be at least ₹1 lakh.

Registered Office

• Office Address: A registered office address is required for official communications, which can be commercial, industrial, or residential property.

Documentation

• Director Identification Number (DIN): Required for all directors.
• Digital Signature Certificate (DSC): Required for electronic document filing.
• Memorandum of Association (MoA) and Articles of Association (AoA): Outline the company’s objectives and internal rules.

Compliance

• Company Name: Must be unique and comply with naming guidelines.
• Government Fees: Applicable fees must be paid during registration.

Registrar of Companies (ROC) Zone-wise List

Here is the list of ROC in India.

Advantages of a Private Limited Company

• Limited Liability Protection: Shareholders are protected from personal liability beyond their shareholding.
• Separate Legal Entity: The company can own property, incur debts, and be sued in its own name.
• Ease of Raising Capital: Structured to attract investors by issuing shares.
• Perpetual Existence: Continues to operate despite changes in membership.

Registration Process of a Private Limited Company

1. Obtain Digital Signature Certificate (DSC) : Required for proposed directors for electronic document filing.
2. Obtain Director Identification Number (DIN) : Unique identification number for prospective directors.
3. Name Approval : Apply for the company name through the MCA portal ensuring uniqueness and compliance with naming guidelines.
4. Incorporation Documents : Prepare and file the MoA and AoA.
5. Certificate of Incorporation : Issued by the ROC upon verification of documents, confirming the company’s existence.
6. PAN and TAN Application : Apply for the company’s Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN).
7. Bank Account Opening : Open a bank account in the company’s name for transactions.

Compliance Requirements for a Private Limited Company

• Annual General Meeting (AGM): Mandatory annual meeting to discuss performance and future strategies.
• Financial Statements: Prepare and file financial statements, including balance sheet and profit and loss account, with the ROC.
• Annual Return: File an annual return with the ROC, detailing shareholders, directors, and financial performance.
• Statutory Audit: Appoint an auditor to conduct a statutory audit of financial statements.

Taxation for Private Limited Companies

• Income Tax: Subject to corporate tax, including income tax and various surcharges.
• GST Compliance: Register for GST and file regular GST returns, ensuring timely and accurate submissions.

Winding Up of a Private Limited Company

• Voluntary Winding Up: Decided by shareholders, involving liability payments and asset distribution.
• Compulsory Winding Up: Ordered by a tribunal for reasons like inability to pay debts or non-compliance with filing requirements.
• Liquidation Process: A liquidator oversees the process, including asset liquidation and debt repayment.

Conclusion

Establishing a private limited company in India offers a solid foundation for business growth and sustainability. With benefits like limited liability, separate legal entity status, and perpetual succession, it is a preferred choice for entrepreneurs. LegalMate India’s team of qualified company lawyers and Chartered Accountants (CA) are dedicated to providing expert guidance and support through every step of the incorporation and compliance process, ensuring your business’s success.