Ashish Garg & Associates Private Limited Company

Private Limited Company

Private Limited Company Registration in India

What is a Private Limited Company?

A Private Limited Company is a business entity formed by a minimum of 2 and a maximum of 200 shareholders (members), whose liability is limited to the shares they hold. It is one of the most popular forms of business organization in India, providing the benefit of limited liability, separate legal identity, and the ability to raise capital through private sources.

Types of Private Limited Companies

  1. One-Person Company (OPC): A type of private limited company with only one member.
  2. Small Company: A private limited company meeting specific criteria for annual turnover and paid-up capital, offering fewer compliance requirements.
  3. Non-Profit Private Limited Company: A company formed for non-commercial purposes, such as charitable organizations.
  4. Limited Liability Company (LLC): Often refers to a company with limited liability but can also represent an entity with more relaxed regulations.

Advantages of a Private Limited Company

  1. Limited Liability: Shareholders’ personal assets are protected. The liability of members is limited to the unpaid amount of their shares.
  2. Separate Legal Entity: A private limited company has its own legal identity distinct from its members.
  3. Easy Transferability of Shares: The shares of the company are transferable to others, though restrictions apply.
  4. Access to Funding: It can raise funds through private placements, venture capital, or even public offerings (under specific conditions).
  5. Credibility: Incorporating as a private limited company can boost business credibility and help establish trust with clients, suppliers, and investors.
  6. Perpetual Succession: The company’s existence is not affected by the death or exit of shareholders or directors.
  7. Tax Benefits: Private limited companies can avail of various tax advantages, including deductions and allowances under the Income Tax Act.

Disadvantages of a Private Limited Company

  1. Cost of Incorporation and Compliance: Setting up and maintaining a private limited company can be costly due to government fees, legal charges, and compliance costs.
  2. Limited Number of Shareholders: A private limited company can have no more than 200 shareholders, limiting scalability.
  3. Restricted Transferability of Shares: Shares can only be transferred with the consent of other members, unlike in public companies where shares are freely transferable.
  4. Complex Regulations: Private limited companies must adhere to multiple statutory and regulatory compliance requirements, such as filing annual returns and financial statements with the Registrar of Companies (RoC).
  5. Limited Control: In case of multiple shareholders, decision-making can become less streamlined and take longer.

Requirements for Registering a Private Limited Company in India

  1. Minimum 2 Directors: The company must have at least two directors, one of whom must be a resident of India.
  2. Minimum 2 Shareholders: A private limited company must have at least two shareholders.
  3. Unique Company Name: A unique name for the company needs to be chosen and approved by the Ministry of Corporate Affairs (MCA).
  4. Registered Office Address: The company must have a physical registered address in India. It could be leased or owned.
  5. Director Identification Number (DIN): Every proposed director must apply for and obtain a DIN from MCA.
  6. Digital Signature Certificate (DSC): At least one of the directors should obtain a DSC to sign e-forms for company registration.

Document Checklist for Private Limited Company Registration

  1. Identity Proof of Directors and Shareholders: PAN card, Aadhar card, passport, voter ID, etc.
  2. Address Proof of Directors and Shareholders: Utility bills (electricity/water bills), bank statement, rental agreement (if applicable).
  3. Photographs of Directors and Shareholders: Passport-sized photographs.
  4. Proof of Registered Office: Rent agreement (if the office is rented) and a utility bill in the name of the lessor or lessee.
  5. Memorandum of Association (MOA): Outlines the company’s objectives and scope.
  6. Articles of Association (AOA): Defines the internal rules and regulations of the company.
  7. Director Consent Letter: Directors must submit a written consent to act as directors of the company.

Post-Registration Compliance for a Private Limited Company

  1. Appointment of Auditor: Within 30 days of incorporation, an auditor must be appointed.
  2. Commencement of Business: The company must apply for a Certificate of Commencement of Business if it is a newly incorporated company.
  3. Obtain PAN and TAN: Apply for a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number).
  4. GST Registration: If the company’s turnover exceeds the prescribed limit, it must obtain GST registration.
  5. File Annual Returns: A private limited company must file annual returns and financial statements with the Registrar of Companies (RoC).
  6. Maintain Statutory Registers: The company must maintain registers of members, directors, and share transfers.
  7. Comply with Labour Laws: If applicable, the company must comply with relevant labor laws, including employee provident fund (EPF), employee state insurance (ESI), and professional tax (PT).
  8. Hold Annual General Meetings (AGMs): The company is required to hold AGMs to discuss business performance and declare dividends.
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