What is a Private Limited Company (Pvt Ltd)?

Indian market is considered to be one of the largest and most diverse forms of market, consisting of a varied range of businesspeople. Therefore, covering all sorts of market tangents, there are now almost eight forms of company structures listed in the Indian Legislation. One of such is a private limited company which further holds few subheads. In this article we will cover all such aspects of a Private Limited Company (Pvt Ltd) which will offer you a better understanding of the market.

Private Limited in its basics

A privately held corporation that is owned by private investors is known as a private limited company. In this instance, there is a limited partnership liability structure, meaning that a shareholder’s liability is restricted to the number of shares they own. Such form of business is owned by shareholders but managed by the directors. In general practice, it is common to see the shareholders as the directors of the company.

A private limited company, limited liability company, and sole proprietorship are just a few of the business registration forms that one should be familiar with as the startup scene in the nation grows and more and more people seek to go it alone.

Types of Private Limited Company (Pvt Ltd)

For the specific structurization of a Private Limited Company (Pvt Ltd), there exist two further subheads specified under the Indian Legislation, which includes a company limited by shares and a company limited by guarantee, described below:

Private company limited by shares

Private company limited by shares is one kind of business that has its share capital split into shares. Here, the company is owned by two or more shareholders whose liability is limited by their shares, and is managed by at least one director. One kind of business that has its share capital split into shares is a private corporation limited by shares. The Company’s Articles of Association will specify the value, class, and rights associated with each share. Shareholders are the people who own shares.

Private company limited by guarantee

A firm that is limited by guarantee has guarantors who are its members and is referred to as Private Company Limited by guarantee. These members give a predetermined sum by the guarantors to help the business out when things are tough.

Requirements to register for a Private Limited Company (Pvt Ltd)

In order to register your business as a Private Limited Company (Pvt Ltd), you will be required to fulfill the following pre-requisites:

• Minimum requirement of two members to register themselves as directors.
• One director shall be an Indian Citizen who is residing in India
• Directors shall be Individual not an artificial body or entity
• Authorized share capital of minimum Rs.1 lakhs.
• Digital Signature Certificate (DSC) of each Director on Board.

Benefits of a Private Limited Company (Pvt Ltd)

A Private Limited Company (Pvt Ltd) is one of the most popular forms of business structure to be followed for registration in the Indian Market. This becomes an evident consequence of the fact that private limited company enjoys a wide range of benefits, such as:

Equity Investment

In a private limited company where the company is managed and owned by its shareholders, the option for equity investment is always open which suggests the possession of equity in exchange of a certain amount of investment in the company. This eventually increases the viability for raising fund for the business operations.

Limited Liability of the Partners

Liability has always been a point of concern for any investor or individual who wants to invest in a business or run a business on his own. The flowers drive many, but thorn scare all. Similarly, thought of liability in the down times has always been that unwanted joint in the rope which is now resolved with the Pvt Ltd Company. The partners, or members, are protected and have their liability limited to their part of shares.

Perennial Progression

The business has its own ups and downs that require constant effort and time, which eventually becomes irregular, particularly when the owner intends to take a break, retire, or finds it too exhausting to work more. In situations like these, it becomes unclear “who” will take charge of managing the company. Business owners can enjoy this freedom from work without having the business paying the cost for their freedom by letting them being replaced another director.

Foreign Direct Investment

Private limited Company is allowed to sustain 100% foreign direct Investment which open portal of global market. As foreign companies, individuals, or investors can directly invest into the company and let the company root itself for the globalization.

Transparency & reliability

When your business is registered as a private limited company, the details of the company such as registration number, the directors’ info, paid-up capital, financial statement, and other relevant information is visible on the public platforms to establish transparency, and therefore credibility in the market among the consumers.

Some bumps of Private Limited Company (Pvt Ltd)

A Private Limited Company (Pvt Ltd) has their own hiccups, which sometimes cause irritation to those who opt for this structure for registration. However, the range of benefits is so wide that some bumps can be ignored. Few of such drawbacks are as follows:

Complex Process

The registration process for private limited company is quite complex requiring filing of several different form, along with documents like Article of Association, and Memorandum of Association. The entire process is generally a multi-step process comprising of several other different process in between.

Restrictive share transfer

The policy or the process of transferring of shares in a private limited company is quite restrictive which requires a resolution passed by the board that only happens if the majority of the board agrees for the transfer of the shares.

Limited Liquidity

Shares of Private Limited Companies do not have the regular marketability or valuation that comes with equities that are publicly traded. Determining the fair value of the company’s shares and negotiating transactions may be difficult if there isn’t a public market for them. This may affect the company’s capacity to pay for acquisitions with its shares as currency or to entice top talent with stock-based compensation.

Greater Scrutiny

Compared to other business forms, private limited company directors are held to a higher standard of legal and regulatory compliance and are scrutinized more closely. Regulations governing private limited businesses are stricter than those governing partnerships or sole proprietorships.

Conclusion

Company formation has always been a multidimensional process to be taken care of, which eventually   requires   a   good amount   of   research and deliberation. Understanding the pros and cons of a structure and then choosing the structure that best matches the needs and requirements of your business is not a single-hand job, it need multiple feet in. This process becomes easier when accompanied by the right kind of support. If you have decided to register your business as a Private Limited Company (Pvt Ltd), then let RegisterKaro do the rest of the job for you, where you just lay back and dream for your dreams to turn into reality.

FAQs

• What are the documents required for a private limited company?

To register a private limited company, you will need a Permanent Account Number, Governmental Identity Proof [Adhar Card, PAN Card, Passport], Bank Statement, Utility Bills such as Electricity Bills, Passport Size Photographs, a Director’s Specimen Signature, a Memorandum of Association, Article of Association, Resolution passed by Board or letter of consent

• How to do the private limited company registration?

To register a private limited company, follow the given steps: select the name <get the approval from MCA < obtain DSC < submission of MoA & AoA < apply for DIN using SPICe+ Form (INC-32) < apply for PAN & TAN < fee payment.

• What are the private limited company requirements?

To register your business as a private limited company, you will need to have a minimum of one director, a Memorandum of Association, an Article of Association, paid-up capital of a minimum of 1,00,000 INR, PAN, TAN, office address, etc.

• What are the private limited company registration fees?

Fees for private limited companies depend upon the paid-up capital of the company, varying from 1000 INR to 16,000 INR.

• Who is eligible for Pvt Ltd?

Any individual who is running or intending to run a business in India along with an Indian Individual is eligible to register for a private limited.

• Can I start a Pvt Ltd company from home?

Yes, you may start a private limited company from home. However, for the company registration process, you will need an office address.

• Can I register the Pvt Ltd company myself?

Yes, you may register a private limited company yourself. However, due to the technicalities and complexities of the process, it is suggested to avail of the company registration services.

• Can one person open a Pvt Ltd company?

One person cannot open a private limited company as there shall be a minimum of two directors on board.

• What is the minimum amount to start a Private Limited Company?

The minimum amount to start a private limited company is 1 lakh for paid-up capital, and 25000 INR for the company registration process. There can be another cost as well, depending on the size and nature of the business along with the paid-up capital amount.

• Is it compulsory to write Pvt Ltd company?

Yes, it is compulsory to write Pvt. Ltd. after a company name that is registered as a private limited company under Indian Legislation.

• What is the benefit of Pvt Ltd?

There are quite a lot number of benefits for registering a private limited company including limited liability, uninterrupted existence, wide pool of investors, confidentiality, separate identity, etc.