Due to its numerous benefits, a Private Limited Company is the most popular corporate entity in India amongst large, medium and small businesses.
One needs a minimum of two directors and two shareholders to register a private limited company. A natural person can be both, a shareholder, and a director whereas a corporate legal entity can only be a shareholder. A Private Limited Company is governed by The Ministry of Corporate Affairs, Companies Act, 2013 and the Companies Incorporation Rules, 2014. The unique privileges of a private limited company include awarding limited liability protection to shareholders, the ability to raise equity funds, and enjoy perpetual existence. Foreign Corporate Entities or NRIs and foreign nationals are permitted to be Shareholders and/or Directors of a Private Limited Company. The company may also function with Foreign Direct Investments, making it a suitable choice for foreign promoters.
Established under the Companies Act, a Private Limited Company is a legal entity and an authorized person with a range of legal abilities including hiring of employees, opening a bank account, obtaining licenses, or taking on equity and other privileges as an independent corporate entity. As a legal entity, the risk is awarded to the company, protecting the members (Directors/Shareholders) of the company from the company’s liabilities or creditors of the company.
Being a separate legal person, a company remains unaltered by the exit or demise of any member. The Company shall remain in existence regardless of any modifications to the ownership. Private Limited Companies enjoy ‘perpetual succession’, i.e. its existence will not be interrupted until the company has been legally dissolved.
The ownership of the business can be easily transferred by simply transferring shares in a company. The consent of the other shareholders of the private limited company may be required to effect transfer of share. The process of filing, signing and share transfer certificates and form is adequate to transfer ownership of a company.
In India, with permission from the RBI, Private Limited Companies may issue debentures, equity shares, preference shares and also accept deposits. In addition, PLCs can also raise equity funds. Banks and Financial institutions prefer providing funding to a Private Limited Company over partnership or proprietary concerns.
As an artificial person, a Private Limited Company can own, purchase, sell and enjoy property in its name. Shareholders cannot claim the property of the company for as long as the company is an ongoing concern. Tangible assets like buildings, land, machinery, factory, property, etc., and intangible assets like rights, shares, etc., are owned by the company.
The proposed Directors of the Private Limited Company require a Director Identification Number (DIN) and a Digital Signature Certificate (DSC). These can be acquired for the proposed directors within 2-3 days.
Between 1 and 6 name options may be submitted to the MCA for approval of the Private Limited Company. This can be obtained in 2 to 3 working days, subject to name availability, naming guidelines and processing time.
In general, the MCA approves an application for incorporation within 5-7 days. Documents of Registration must be submitted to the MCA along with the application.
All directors and shareholders are required to supply Identity proof and Address proof for the company to be incorporated. Indian national must provide a PAN card. Foreign nationals must submit apostilled or notarized copies of their passport. All documents supplied must be valid. Utility bills, no older than 2 months, such as electricity bills, or bank statements must be supplied for residence proof must.
All companies must have a registered office in India. To prove proof of the registered office, a recent copy of the electricity or water bill, or property tax receipt must be submitted along with the sale deed or rental agreement and a letter from the landlord with his/her consent to use the office as a registered office of a company.