Private Limited Company

Private Limited CompanyA private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures.

Its main features are :-

(a). It has an independent legal existence. The Indian Companies Act,1956 contains the provisions regarding the legal formalities for setting up of a private limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.

(b). It is relatively less cumbersome to organise and operate it as it has been exempted from many regulations and restrictions to which a public limited company is subjected to. Some of them are :-

  1. It need not file a prospectus with the Registrar.
  2. It need not obtain the Certificate for Commencement of business.
  3. It need not hold the statutory general meeting nor need it file the statutory report.
  4. Restrictions placed on the directors of the public limited company do not apply to its director..

(c). The liability of its members is limited.

(d). The shares allotted to it’s members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures.

(e). It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it.

Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.

Also Read : The Negotiable Instruments Act, 1881

Advantage of Private Limited Company Disadvantage of Private Limited Company
Continuity of existence Shares are not freely transferable
Limited liability Not allowed to invite public to subscribe to its shares
Less legal restrictions Undemocratic control

Must Read : Public Limited Company

***Frequently Asked Question about Private Limited Company

Q 1. How many peoples are required to incorporate a private limited company?

Ans:  To incorporate a private limited company, a minimum of two people are required. A private limited company must have a minimum of two Directors. A minimum of two shareholders and a maximum of upto 200 shareholders are allowed in a private limited company.

Q 2. What are the requirements to be a director?

Ans:  The Director needs to be over 18 years of age and must be a natural person. There are no limitations in terms of  citizenship or residency. Therefore, even foreign nationals can be Directors in a Indian Private Limited Company.

Q 3. What are the documents required for a private limited company registration?

Ans:  Identity proof and address proof is mandatory for all the proposed Directors of the Company.

PAN Card is mandatory for Indian Nationals.

In addition, the landlord of the registered office premises must provide a No Objection Certificate for having the registered office in his/her premises and must submit his/her identity proof and address proof.

Q 4. What is digital signature certificate?

Ans:  A Digital Signature establishes the identity of the sender or signee electronically while filing documents through   the Internet. The Ministry of Corporate Affairs (MCA) mandates that the Directors sign some of the application documents using their Digital Signature. Hence, a Digital Signature is required for all Directors of a proposed Company.

Q 5. What is Directory Identification Number (DIN)?

Ans:  Director Identification Number is a unique identification number assigned to all existing and proposed Directors   of a Company. It is mandatory for all present or proposed Directors to have a Director Identification Number. Director Identification Number never expires and a person can have only one Director Identification Number.

Q 6. What is authorized capital fee?

Ans:  Authorized capital of a Company is the amount of shares a company can issue to it shareholders. Companies have to pay the Government an authorized capital fee to issue shares in a Company. Companies have to pay authorized capital fee for a minimum of Rs.1 lakh.

Q 7. What are the statutory compliance required for a Private Limited Company?

And:  A private limited company must hold a Board Meeting atleast once in every 3 months. In addition to the Board Meetings, an Annual General Meeting must be conducted by the Private Limited Company, atleast once every year.

Q 8. Can NRI or Foreign Nationals be a Director in a Private Limited Company?

Ans:  Yes, a NRI or Foreign National can be a Director in a Private Limited Company after obtaining Director Identification Number (DIN). However, at least one Director on the Board of Directors must be a Resident India.

Q 9. Can NRIs / Foreign Nationals / Foreign Companies hold shares of a Private Limited Company?

Ans:  Yes, NRIs / Foreign Nationals / Foreign Companies can hold shares of a Private Limited Company subject to Foreign Direct Investment (FDI) Guidelines.

Q 10. What are the FDI Guidelines for Foreigners in a Private Limited Company?

Ans:  100% Foreign Direct Investment is allowed in India in many of the industries under the Automatic Route. Under the Automatic Route, only a post-investment filing is necessary with the RBI indicating the nature of investment made. There are a few industries that require prior approval from the RBI, in such cases, approval must first be  obtained from RBI prior to investment.