A private limited company is one type of business structure. A private limited company is a type of privately held small business entity. This type of business entity limits owner liability to their shares, limits the number of shareholders to 50, and restricts shareholders from publicly trading shares.

What is mean by private limited company?

According to section 2 clause 68 of the Companies Act, 2013, Private Limited company means a “Private Company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,—

  •  Restricts the right to transfer its shares;
  •  Except in a case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that—

(A) persons who are in the employment of the company; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company.”

(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members;

  • Prohibits any invitation to the public to subscribe for any securities of the company.”

What are the requirement for incorporate a private limited company?

Authorised capital100000

What are the benefits of private limited company?

A private limited company is the most commonly used entity to start the business . Private Limited companies offer the following advantages:

Separate Legal Entity

A company is a seperate legal entity and a juristic person established under the Act. It means the company and its members are two separate legal entity. The company can own property and incur the debts.

 Uninterrupted existence

A company has ‘perpetual succession’, that is continue for the over the period of time until it got dissolved legally. It is not affected by any death of any directors or members. It goes over an years for the long time.

Limited Liability

Limited Liability means the status of being legally responsible only to a limited amount for debts of a company. Unlike proprietorships and partnerships, in a limited liability company the liability of the members in respect of the company’s debts is limited. In other words, the liability of the members of a company is limited only to the extent of the face value of shares taken up by them. Therefore, where a company is limited by shares, the liability of the members on a winding-up is limited to the amount unpaid on their shares.

Free & Easy transferability of shares

Shares of a company limited by shares are transferable by a shareholder t any other person. The transfer is easy as compared to the transfer of interest in business run as a proprietary concern or a partnership. Filing and signing a share transfer form and handing over the buyer of the shares along with share certificate can easily transfer shares.

Owning Property

A company being a juristic person, can acquire, own, enjoy and alienate, property in its own name. No shareholder can make any claim upon the property of the company so long as the company is a going concern. The shareholders are not the owners of the company’s property. The company itself is the true owner.

Capacity to sue and be sued

To sue means to institute legal proceedings against or to bring a suit in a court of law. Just as one person can bring a legal action in his/her own name against another in that person’s name, a company being an independent legal entity can sue and also be sued in its own name.

Dual Relationship

In the company form of organization it is possible for a company to make a valid and effective contract with any of tis members. It is also possible for a person to be in control of a company and at the same time be in its employment. Thus, a person can at the same time be a shareholder, creditor, director and also an employee of the company.

Borrowing Capacity

A company enjoys better avenues for borrowing of funds. It can issue debentures, secured as well as unsecured and can also accept deposits from the public, etc. Even banking and financial institutions prefer to render large financial assistance to a company rather than partnership firms or proprietary concerns.

What are the documents required?

Aadhar card of the directors
Signed copy of Dir-2
Pan card copy of director
Color Photograph of directors
Utility bill of directors
Noc for using registered office
Utility bill of registered office

What is the process of incorporation?

What is commencement of business?

By The Companies (Amendment) Ordinance 2018, Ministry of Corporate Affairs has directed that-

All the companies that were registered after the Companies (Amendment) Ordinance, 2018 was passed and

Holding a share capital are required to file the obtain eFORM INC-20A.

Now, the Companies (Amendment) Ordinance 2018 was passed on 2nd November 2018. Hence, all those companies that have undergone company formation, and are incorporated after November 2018 shall file the eFORM INC-20A to obtain Commencement of Business Certificate.

This online form is for obtaining the certificate of commencement of business. It has to be filed by all the specified companies before they commence any business or exercise any borrowing powers.

The MCA has stated that the eFORM INC-20A shall be filled for the declaration of commencement of business within 180 days from the very date of obtaining Certificate of Incorporation (CoI).

For example, a company has obtained CoI and has completed the company formation process on 2nd November 2018, it has to file eFORM INC-20A latest by 2nd May 2019.

The MCA has imposed different penalties on the Company as well as its Directors, in case of Non-filing of e FORM INC-20A. These have been given below-

ParticularsAmount (in ₹)
Penalty Levied on the Company5000
Penalty Levied on the Company Directors1000 per day

The maximum penalty prescribed for Not filing of eFORM INC-20A till the expiration of 180 days from the date of company formation is ₹ 1 lakhs.

Link form 20a and notification from MCA

Can NRIs and foreign nationals or foreign entities register a private limited company?

Yes, NRIs, foreign nationals and foreign entities can register a company and invest in India, subject to the Foreign Direct Investment norms set by the RBI. However, incorporation rules in India require for one Indian national to be a part of the company on the Board of Directors.

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