What is a Private Limited Company?
A private limited company is a company held privately by a group of persons. The member’s liability is limited to the shares held by them in the company. However, the shares of the private limited company cannot be publicly traded.
A private limited company is a popular form of business structure in India. It can be registered with just two members and two directors. However, the maximum number of members is 200. It is the most recommended form of business structure for millions of small and medium businesses that are professionally managed or family-owned.
Section 2(68) of the Companies Act, 2013 defines a private limited company as follows:
- A company having a minimum paid-up share capital.
- It restricts the right to transfer shares through its Articles of Association (AOA).
- It limits the number of its members to 200.
- It prohibits the issuance of a public invitation for subscribing to its securities.
- Two Directors: A private limited company must have at least two directors, with a maximum of fifteen. A minimum of one of the company’s directors must be a resident of India.
- Unique Name: -The name of your business must be unique. The suggested name should not match with any existing companies or trademarks in India.
- Minimum Capital Contribution: – There is no minimum capital amount for a company. A company should have an authorized capital of at least ₹.2 /-.
- Registered Office: – The registered office of a company does not have to be a commercial space. Even a rented home can be the registered office, so long as an NOC is obtained from the landlord.
- No Minimum Paid-up Capital-After the amendment of the Companies Act, 2013, private limited companies do not require a minimum paid-up capital. It can be registered with a nominal amount of Rs.2/- authorised share capital.
- Separate Legal Entity-A private limited company has a legal entity separate from its members. A separate legal entity means the law identifies the company as an entity with its own assets and liabilities. It can sue and be sued in its own name, i.e. company name. There is a separation of management and ownership. Thus, the managers are responsible and answerable for the company’s loss.
- Limited Liability of Members-The members of the private limited company have limited liability. It means that if the company faces a loss, the personal assets of the members will not be used to pay the company’s debts. The members are liable to pay the debts only to the extent of how much they own towards their shareholding, i.e. the unpaid share value.
- Fund Raising-It is easier for a company to raise funds than a sole proprietorship or partnership firm. Angel investors and venture capitalists invest only in private limited companies or public limited companies.
- Perpetual Existence-A private limited company has a perpetual succession, which means it has a continued or uninterrupted existence until it is legally dissolved. Since the company is a separate legal person, the death of the founders, directors or members does not affect its existence. It continues its business irrespective of the changes in membership.
- Foreign Direct Investment (FDI)-In a private limited company, 100% Foreign Direct Investment (FDI) is allowed, which means any foreign person or entity can directly invest in the company. FDI will help the company grow across the nation and even globally.
- Credibility-The financial statements and incorporation details of a private limited company are available on the MCA website. This improves the company’s credibility since it makes it easy for investors, financial institutions and clients to easily authenticate company details before associating with it.