Key Information to Know Before Applying for a Private Limited Company

Before applying for a Private Limited Company in India, it’s important to understand its structure, benefits, and legal obligations. This blog will walk you through the key details, types of private companies, eligibility, and things to prepare, so you can make an informed decision before beginning your company registration process.

While there are many other companies situated like private companies or sole proprietorships, registering as a private Limited Company has its advantages. In this, we will study the step-by-step Process of Private Limited Company Registration and how it works in India.

Significant Points to Remember 

1. No minimum paid-up capital requirement. 

2. Minimum number of members-2 [Except if the company is an OPC]

3. Right to transfer the shares. 

4. Maximum number of members-200, excluding present employee cum members. 

5. Prohibition on an invitation to subscribe to the securities of the company. 

Types of Private Limited Companies in India

1. Company Limited By Shares

Section 2 [22] of the Companies Act, 2013 defines that when the liability of the members of a company is limited by its memorandum of association [MOA] to the amount unpaid on the shares held by them it is known as a company limited by shares.

Thus, it implies that to meet the debts of the company, the shareholder may be called upon to contribute only to the extent of the amount that remains unpaid on his shareholdings.

While a shareholder can be the co-owner of the company, he is not the owner of the company’s assets. the ownership of the assets will remain with the company because of its nature as a legal person.

2. Company Limited by Guarantee

Section 2[21] of the Companies Act, 2013 defines it as a company having the liability of its members limited by the memorandum to such amount that the members may respectively undertake by the memorandum to contribute to the assets of the company.

Thus, the liability of a member of a guarantee company is limited up to a sum mentioned in the memorandum. Members cannot be called upon to contribute beyond the stipulated sum.

This company is only useful when there is no need for working funds, or these funds can be held from other resources like fees, donations, charges, etc.

3. Unlimited Company 

Section 2[92] of the Companies Act, 2013 defines an unlimited company as a company not having any limit on the liability of its members. In this, the liability of a member ceases when he ceases to be a member. 

The liability of each member of this company extends to the whole amount of the company’s debts and liability but he will be entitled to claim this contribution from the other members. 

In case the company has a share capital, the Article of Association [AOA] must state the amount of share capital and the amount of each share. 

Private Limited Company Registration Process in India

Step 1- DSC  

Digital Signature Certificates are important when you register for the online process in India. It is required to fill out the forms on the MCA portal. It is used to prove one’s identity and to access all the services over the internet. You can apply it from mca.gov.in for fast results. 

Step 2- DIN 

A Director Identification Number is a unique direct identification number allotted by the central government to any person intending to be a director or an existing director of the company. It is mandatory for any type of communication with the Income Tax Department. You can apply it from mca.gov.in to start your application process. 

Step 3- Apply for the Name Availability 

A company name has immense power to assure the quality of your brand or to set customer expectations. It represents your brand uniquely and subtly, so it is important to take time and effort in naming your company. Once done, you can check the name availability on MCA. 

Step 4- Submission of AOA and MOA 

The next important step is to submit a Memorandum of Association [MOA] and Articles of Association [AOA]. It defines your company’s scope of work and its internal management. 

Step 5- Apply for PAN and TAN of the Company 

While TAN is a number allocated to tax deductors, PAN or permanent account number is allotted to the taxpayers. PAN is a ten-digit number that is mandatory for the income tax department.  

Step 6- Certificate of Incorporation 

RJSC will issue a certificate of incorporation to the company. This certificate will have the registration number, name of the company, and date of incorporation.

Documents You Should Prepare in Advance 

Some key documents required for private limited company registration are as below;

1. PAN Card

2. Aadhar Card 

3. Passport Size Photograph 

4. Voter ID/Passport 

5. Telephone Electricity Bill/Bank Account Statement 

Note: Documents Required for Private Limited Company Registration

Characteristics of Pvt Ltd Company

1. According to the amendment in 2015, private companies can only have a minimum paid-up share capital of one lakh. It can have the capital of any amount because the amendment has been removed.

2. All the private companies must include ‘Private Limited’ or ‘Pvt Ltd’ in their names. 

3. A company holds perpetual succession that a company will continue to survive until it dissolves legally. 

4. A private company must have at least two boards of directors. 

5. The legal formalities in a private company are less than compared of a public company. 

Why You Might Choose a Pvt Ltd Company

1. Separate Legal Entity: The company will have a separate legal entity distinct from its members. 

2. Limited Liability: The members are only responsible for a limited amount of debts for the company. 

3. Ownership of Assets: A company can acquire or own the property in its name. 

4. Legal Recognition: The company can sue and also be sued by other companies. 

5. Easier Fundraising: It is easy to fetch funding through the transfer of shares. 

Disadvantages of Pvt Ltd Company

1. Limited Membership: The number of members cannot exceed 200. 

2. Restricted Fundraising: A private company cannot raise shares for its own company. Therefore, it can create limitations to the growth of the company. 

3. Higher Incorporation Costs: They are more difficult and expensive to incorporate than a sole proprietorship. 

4. No Public Trading: The shares cannot be offered to the public and cannot be listed on the stock exchange.  

5. Shareholder Limit: The number of shareholders cannot exceed 50.

Is a Private Limited Company Right for You?

Not every business structure suits every entrepreneur. Consider the scale of your operations, future fundraising needs, and compliance capabilities before choosing a Private Limited Company. For solo entrepreneurs or freelancers, easier options like sole proprietorships or OPCs may work better.

Conclusion

Understanding these conditions will help you to decide whether a Private Limited Company is the right structure for your business or not. Once you’re ready to incorporate, you can begin the process confidently or consult a professional like JustStart to handle the formalities and Documentation smoothly