Starting a business is one of the most interesting and rewarding experience of anyone’s life. One of the critical decisions made by the entrepreneur while starting this journey is the selection of his business entity. The choice of the business entity has long term implications for throughout the business’ life-cycle. Hence, it is important to discuss your business plan with a professional, and choose an entity that will support the vision of the business.

The growth of trade and business led to many problems that traditional forms of business did not solve. For example, the unlimited liability feature of a sole proprietorship form of business resulted in people forming partnerships, but even that proved to be too inadequate and risky. This is when the concept of private companies emerged. A private limited company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Company cannot be publically traded.

A private limited companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.

After the amendment in 2005 in Companies Act the requirement of minimum paid-up capital has removed. Private companies can now have a minimum paid-up capital of any amount.

Types of Private lmited Company

Limited by shares: The liability of the members is limited to the amount unpaid to the company with respect to the shares held by them.

Limited by guarantee: Here the members’ liabilities are limited to the amount of money they guarantee to pay in case the company is wound-up.

Unlimited liability: The liability of members is unlimited in this type of private companies. Personal assets of members can be attached and sold when the company is being wound-up.

Top 10 advantages to register as Private Limited Company in India

No minimum capital required

There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.          

Minimum 2 and maximum 200 members

A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.

Transferability of shares restricted

Private companies cannot freely transfer their shares to the public like public companies.

Attract Funding

Funds can be borrowed to a great extent by issuing the debentures. More likely, Company raises funds by shareholders as well. The Banking and Financial Organizations are more likely to assist a Private Limited Company rather than other forms of business.

Limit the Risk to Personal Assets

Members are not accountable for the debts of the company. The shareholders are only liable/responsible for their share of money which they've invested in the company. Shareholders liability is limited to their unpaid amount of shares only.               

Tax Advantages

Private Limited Companies enjoy tax advantages added on to the limited liability wherein the companies pay corporation tax on their taxable profit and tend to get excused from higher personal income tax rates. Instead of being a sole trader forming of a company leads to increase in tax deduction and allowances redeemable against profits.

Dual Relationship

This means in a Private Limited Company it is possible to make an effective contract with any of its members. A person can be at the same time be a shareholder, creditor, director and also an employee of the company. It is flexible regarding the members of the company.er the Registrar grants a certificate of incorporation to them.

Owning the Company

Since the company is a juristic person it is the only owner and no one can demand the ownership of the company. The shareholders can't make any claim upon the property of the company, the Company itself is the true owner. Although, At the time of dissolution after paying every debt, Shareholders can claim their amount from the property of the company.               

Distinct Legal Entity

The Private Limited Company Members and Promoters are separate from the company. Who are not bound by any act of the company. Hence the distinct legal entity that benefits the members.

The Scope of Expansion

There is a higher scope of expansion because it is easy to raise capital from the financial institutes. And a Private Limited Company can be converted into other forms of usiness as well, it can be converted into a Public Limited Company, Nidhi Company, etc.

Registration Process of private limited company

Name Reservation

Procurement of Digital signatures

Preperation of Incorporation documents

Drafting of MOA/AOA

Filling of Incorporation documents with MCA

Filling of Registered office

 Filing of commencement of Business after Incorporation

Issue of Share certificate to shareholders

Documents required for incorporation