The private limited company [as defined under section 2(68) of Companies Act, 2013] means a company having a minimum paid-up share capital of INR 100,000 or such higher paid-up share capital as may be prescribed, and which by its articles (AOA, By-laws):-
- Restricts the right to transfer its shares;
- Limits the number of its members to two hundred (except in case of OPC). Where two or more persons jointly hold one or more shares in the company, they shall, for the purposes of this clause, be treated as a single member, which will not include:
- Members who are employees of the company and
- Members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees
- Prohibits any invitation to the public to subscribe for any securities of the company;
In simple words, the private limited company is a company whose ownership is private usually by family members, friends, and relatives.
Advantages of Private Limited Company:
Your Risk in the business minimizes: If the company experience financial distress because of normal business activity, the personal assets of shareholders will not be at risk of being seized by creditors because of limited liability of the shareholders.
Your Tax Burden Reduces: There are many allowances and tax-deductible costs that can be offset against the profits of a company and the tax would be paid after deducting any costs incurred by you. In addition to that, the current level of Income Tax prescribed for the startup companies is lower than those for other corporates
Your Social Appeal and Reputation Enhances: With the formation of a company, you are declaring to the people that you are serious about the business and its continuity. Banks easily provide loans against the security of the company’s assets. The greatest advantage is that you can build the right team of people. A quality workforce is not hesitant to be part of the company, because of their sense of security.
The scope of Expansions is Higher: Scope for expanding the business becomes high, as the authorized capital can be increased over INR 1,00,000/-, which multiplies the borrowing capacity of the organization and also secures the deposits and loans from Banks and financial institutions as ‘big projects require big investments’.
Multiple Assets Bring Multiple Advantages: You play multiple roles and get multiple advantages. As a director, you receive remuneration, as a shareholder you receive a dividend, as a lessor you receive rent, etc.
Continuity of Existence: People may join or leave the company, but the company is permanent. Whether or not you are there, your dream enterprise exists eternally, unless it is dissolved.
Your Wealth Creation Skills Leverages: Shareholders do not fear much because their risk is limited to the extent of their share and you can accumulate huge investment from the shareholders and business debt from the lenders.
Transfer/ Sale of the company is easy: You can transfer the entire shareholding to the intended people as an ongoing concern. These changes of ownership save the time & money and stamp duty.
Preliminary requirements to form a Private Limited Company:
- Two promoters (shareholders/ members)
- Two directors(maybe shareholder/ member himself)
- The authorized capital of Rs.1,00,000/- (Minimum)
- Director Identification Number(DIN) of the director
- Digital Signature Certificate (DSC) of the director
- Proposed names of a company (at least three)
- Name search and application for name availability
- Drafting of Bye-Laws (MOA & AOA)