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Characteristics of Private Limited Company

Updated on :  

08 min read.

A private limited company is a company established by a few individuals privately. The shareholders of a private limited company cannot trade their shares publicly. A private limited company cannot issue a prospectus inviting the public to subscribe to its shares. It is the most recommended type of business entity for many small and medium businesses that are managed by a few individuals or are family-owned.

Definition of a Private Limited Company

Section 2(68) of the Companies Act, 2013 (‘Act’) defines a private company as a company having a minimum paid-up capital as prescribed and whose articles of association:

  • Restricts the right to transfer shares
  • Excluding One Person Company (OPC) limits the number of its members to 200
  • Restricts any invitation to the public to subscribe to any company securities

However, when two or more members of a private limited company hold one or more shares jointly, they are considered a single member. Further, the following will not be considered as company members:

  • Persons who are employees of the company
  • Persons who were former employees of the company and also members while in employment and continued to be members after cessation of their employment

Characteristics/Features of a Private Limited Company

Members 

The Act provides that a private limited company must have a minimum of two members, while the maximum members limit is 200. 

Number of directors

The Act provides that a private limited company must have a minimum of two directors, while the maximum number of directors is 15.

Limited liability

The liability of all members or shareholders of a private limited company is limited. It means that when the company faces a loss under any circumstance, its shareholders will not be liable to sell their personal assets for payment. They will be liable to repay for only the amount of the shares subscribed or the guaranteed amount they have agreed to pay.

Perpetual succession

Perpetual succession means the company will continue to exist in the eyes of the law irrespective of insolvency, bankruptcy or death of any of its members. The life of the company continues to exist forever.

Authorised and paid-up share capital 

The private limited company must have an authorised share capital of Rs.1 lakh. Due to an amendment to the Companies Act, it need not have any minimum paid-up share capital. Before the amendment of the Act, it needed to have a minimum paid-up capital of Rs.1 lakh, which has now been removed.

Name 

A private limited company name must have the words ‘private limited’ after its name. For example, if the company name is ABC, it must write its name as ‘ABC Pvt. Ltd’ in all its official communications and the company registration form.

Prospectus 

A prospectus is a detailed statement providing the status of company affairs. A company issues prospectus to the public to subscribe to the company share. However, a private limited company cannot issue a prospectus as it cannot invite the public to subscribe to its shares.

Index of members

A private company does not have to maintain an index of its members as per the Act. Whereas, a public company must maintain an index of its members.

Types of Private Limited Companies

The types of private limited companies depend on their member’s liabilities, which can be as follows:

  • Limited by shares: In this case, the liability of the members is limited to the amount unpaid towards the company with regard to the shares held by them.
  • Limited by guarantee: The liability is limited to the sum of money the members guarantee to pay if the company is wound-up.
  • Unlimited liability: The liability of members is unlimited, which means that members’ personal assets can be sold when the company is wound-up.

Requirements for Registration of Private Limited Company

The requirements for private limited company registration are:

Members

There must be a minimum number of two members or shareholders before applying for registration of the company. However, the number of members cannot be more than 200.

Directors 

There must be a minimum number of two directors for registering a private limited company. All directors must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs (MCA). The company must have at least one director who is a resident of India. 

Name 

The company must send its name to the Registrar of Companies (ROC) for its approval. It can get its name approved by reserving the name in the company registration form (SPICe+). However, the company must choose a unique name that does not resemble any other company’s name. If the company’s name resembles another registered company name, the ROC will reject the registration application.

Registered office address 

The company owner must provide the company’s registered office address or temporary address when applying for registration. All correspondences from the ROC will be sent to the address provided in the registration form. Thus, it is essential to have a company office address. If the company address is temporary, it must establish a registered office within 30 days of its incorporation. The registered office is where the company will conduct its main affairs and keep all the company documents.

Digital Signature Certificate (DSC)

The company registration is entirely online. The company registration form and documents must be digitally signed. Thus, all directors must obtain a DSC before applying for registration.

Professional certification 

For establishing a private limited company, certification by professionals is necessary. A professional such as a chartered accountant, company secretary, or cost accountant must make his/her certification when applying for company registration.

Process to Register Private Limited Company

The steps to establish a private limited company are as follows:

Step 1: Obtain Digital Signature Certificate (DSC)

All the directors must obtain a DSC as it is required to file forms on the MCA portal and sign digital documents like the e-MOA and e-AOA. Even the subscribers and witnesses of the Memorandum of Association (MOA) and Articles of Association (AOA) must obtain DSC since they need to attach their DSC on the e-MOA and e-AOA that must be filed with the registration form.

Step 2: Obtain Director Identification Number (DIN)

The DIN is the unique identification number of a director. It is mandatory for a person proposing to be a director in a company to obtain a DIN. One DIN is sufficient to act as a director in any number of companies. 

Step 3: Name Availability

The SPICe+ form (company registration form) allows for ‘name reservation’ in Part-A. A company can enter two proposed names in the SPICe+ form. In case of rejection of the name, the company has to file another SPICe+ form with the prescribed fee. 

However, when the ROC approves the name, it will be reserved for 20 days, within which the company must fill and submit Part-B of the SPICe+ form. A company can also apply for the proposed name and application for incorporation together, i.e. Part-A and Part-B of the SPICe+ form can be submitted together. 

Step 4: Form SPICe+ INC-32

The company must complete and submit Part-B of the new SPICe+ form on the MCA portal. Many services are consolidated in the SPICe+ form. It provides the following services and benefits in a single application:

  • Reservation of company name
  • Application for allotment of DIN (Director Identification Number)
  • Application for PAN and TAN 
  • Application for EPFO registration 
  • Application for ESIC registration 
  • Application for opening a company bank account

The DSC of a professional is required to complete the SPICe+ form. The professional should certify that the information provided in the form is correct.

Step 5: e-MOA and e-AOA

e-MOA means electronic Memorandum of Association, and e-AOA is electronic Articles of Association. E-MOA and e-AOA are filed online on the MCA portal as a linked form with the SPICe+ form. Both these forms should contain the DSC of the subscribers to the MOA and AOA.

Step 6: PAN and TAN application

A company can apply for PAN and TAN through the SPICe+ form. After submitting the SPICe+ form, the system will auto-generate the company PAN and TAN. The Certificate of Incorporation is issued with the PAN allotted by the Income Tax Department.

When all the details in the SPICe+ form are correct, and the company submits the required documents, the ROC will approve the registration and a CIN (Corporate Identity Number) to the company. It will also send the Certificate of Incorporation to the company at its registered office address. 

Documents Required to Register a Private Limited Company

  • An affidavit on a stamp paper given by the subscribers stating their willingness to become the company shareholders 
  • Proof of office address (Rental agreement or sale deed or ownership deed of the office premises)
  • NOC from the property owner when the registered office is situated on a rented/leased property
  • Copies of utility bills such as water, electricity or gas bill, not older than two months
  • Identity and address proof of all the directors

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.

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