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What is the Private Limited Company?
The
Companies Act, 2013 defines a private limited company as a company whose
article of association restricts the transferability of shares and prevents the
public from subscribing to them. This is a distinct feature that differentiates
private limited companies from other types of public companies. This article
discusses what a private limited company is, explores the various types of
private limited companies and learns how to start one. Section 2 (68) of The
Companies Act, 2013 defines a private limited company as a separate entity that
is held privately and provides limited liability. In a private limited company,
all business profits and liabilities belong to the company itself and
stakeholders may not be responsible for debts incurred by the company.
Type of Private Limited Company
Private
limited companies are types of companies that have a clear description of each
person's role to help understand and identify differences between them.
There
are three type of private limited company:
1. Private
company Limited by shares
2.
Private Company
Limited by Guarantee
3.
Unlimited
Company
Private company Limited by shares
Private
company limited by shares is a type of company where the capital is divided
into small parts known as shares, which are introduced to Shareholders. Unlike
public limited companies, A Pvt Ltd company shares can't be given to the
public. "Limited by shares" means that the liability of the members
of limited by share company (Shareholders) to creditors of the private limited
company is restricted to the capital amount initially contributed. In the case
of the company's insolvency or loss, any money contributed to the company will
be lost.
Private Company Limited By Guarantee
Private
Company Limited by guarantee is a type of limited company that does not include
shareholders, but instead has members who are guarantors of the company's
liability. In the event of a company's debts or winding up, each member is
allotted a certain amount in the articles.
Unlimited Company
Limited
by share companies have unlimited liability for their members, meaning their
personal assets can be used to pay the company's liabilities and debts. This
type of company is more beneficial for business purposes, as it provides a
maximum safeguard and is widely accepted. ROC has given incorporation
certificates to Limited by share companies, making them more beneficial for
business purposes.
What are the documents required for the
private limited company?
Private
limited company required the following documents to set them into private
limited company:
·
Memorandum of association
·
Article of association
·
Certificate of incorporation
·
Other documents
Memorandum
of association: A corporate
document is a charter of the company that defines the company's relationships
with shareholders and its goals. It outlines the purpose of setting up a
business, the nature of the business, the objective of the company, and the
capital clause.
Article of association: The
document explains the internal operating system of the company, including the
managing process, duties and responsibilities of each member, dividend policy,
shareholder meetings and appointment of directors.
Certificate
of incorporation: The ROC is the
primary document of authentication of a company, issued by the Registrar of
Companies (ROC) after submitting all required documents for registration.
Other documents: Other
documents include ID proof, address proof, rental agreement, NOC from property
owner, and copy of sale deed for all directors and shareholders of the company.
How to get registration of private limited
company?
Step 1: Digital Signature
Certificate (DSC)
Digital
signatures (DSC) are required for all proposed directors and subscribers of the
Memorandum of Association (MOA) and Articles of Association (AOA). DSC can be
obtained from government recognized certifying authorities and can be obtained
online in two days. Class 3 DSC must be obtained by the directors and
subscribers of MOA and AOA.
Step 2: Director Identification
Number (DIN)
The
Director Identification Number (DIN) is an identification number for a director
and must be obtained by anyone who wants to be a director in a company. It can
be obtained through the SPICe+ form, a web-based company registration form, for
a maximum of three directors. If there are more directors in the company and
they do not have a DIN, the company can be incorporated with three directors
and appoint new directors later on. The appointed directors can obtain DIN by
filing the DIR-3 form since only the proposed directors of an existing company
can apply for DIN in the SPICe+ form.
Step 3: Registration on the MCA
Portal
The SPICe+ form is to be filled out and
submitted on the MCA portal. The director of the company must register on the
MCA portal to obtain access to the MCA portal services. The company must
reserve its name by submitting two proposed names in the Part-A of the SPICe+
form. If the SPICe+ form gets rejected due to non-approval of the company name,
the applicant has to re-file another SPICe+ form. After the approval of the
name filed in Part-A of the SPICe+ form, it will be reserved for a period of 20
days within which the company must fill Part-B of the SPICe+ form and submit it
online. The applicant must provide details of the company and directors in the
Part-B of the SPICe+ form, attach documents, attach DSC, check the form and
submit it.
Step 4: Certification of
Incorporation
The
Registrar of Companies will examine the application and issue a Certificate of
Incorporation with PAN and TAN as allotted by the Income Tax Department. An
electronic mail with the Certificate of Incorporation as an attachment will be
sent to the applicant. This covers the basics of how to register a company.
What is the advantage of Private Limited
Company?
The
mean advantage of private limited company is following:
·
Separate legal entity
·
Continuous existence
·
Limited liability
·
Easy to transferability of shares
·
Owning property
·
Borrowing capacity
Separate legal entity: A
company is a legal entity and a juristic person established under the Act. It
has wide legal capacity and can own property and incur debts. The members
(Shareholders/Directors) of a company have no liability to the creditors of a
company for such debts, making it a separate legal entity from that of its
members.
Continuous existence: A
company has 'perpetual succession', which is continued or uninterrupted
existence until it is legally dissolved. It is unaffected by the death or
departure of any member, and is one of the most important characteristics of a
company.
Limited liability: Limited
Liability is the status of being legally responsible only to a limited amount
for debts of a company. Unlike proprietorships and partnerships, 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, the liability of the members on a
winding-up is limited to the amount unpaid on their shares.
Easy to transferability of share: Shares
of a company limited by shares are transferable by a shareholder to any other
person. The transfer is easy compared to the transfer of interest in a
proprietary concern or partnership. Filing and signing a share transfer form
and handing over the buyer with a share certificate can easily transfer shares.
Owning property: A
company is a juristic person that can acquire, own, enjoy and alienate property
in its own name. No shareholder can make any claim upon the company's property,
as the company itself is the true owner.
Borrowing capacity: A
company has better avenues for borrowing funds, such as issuing debentures and
accepting deposits from the public. Banking and financial institutions prefer
to lend large financial assistance to companies, rather than partnership firms
or proprietary concerns.
