Private Limited Company

Career and Investment Planning

Entrepreneur Journey

We will be explaining about the Private Limited Company in this article in continuation to our entrepreneur journey articles under Career and Investment Planning Series,

Government of India introduced Private Limited Company under Companies Act, 1956 and, It requires minimum two directors to incorporate. It has restriction over maximum shareholders of 50 person under Companies Act, 1956. It has been increased to have maximum 200 person as shareholders under Companies Act, 2013. It is introduced to protect and manage businesses with restrictions of publicly trading shares.  

Features of Private Limited Company   

• A minimum of two people as directors requires to form it.  
• There is an upper limit on the maximum number of directors as 15 and shareholders as 200. 
• The Liability of each shareholder is limited to their shareholding.  
• It protects the directors or shareholders and they have limited liability towards company. For example, one may sue the company, not the shareholders or directors individually in case of any dispute. 
• It requires some compliance to be followed, being incorporated with the Ministry of Corporate Affairs.
• Minimum capital is 1 lakhs rupee required for formation. 
• Capital or funds can be raised using equity, expand and at the same time limits the liability. Thus, Angel Investors or Venture Capitalists prefer to invest in a private limited company to raise capital. 
• It remains unaffected by a death or cessation of any member and continues to be in existence irrespective of the changes in membership until it is dissolved as it is separate legal person,  
• It has restrictions to have at least one-woman director for certain classes of companies. 
• Public Limited Company can be converted into Private Limited Company post Tribunal approval. 

Formation Procedure

• Digital Signature Certificate (DSC) will be applied from the applicable competitive authorities. 
• Director Identification Number (DIN) will be applied, once Digital Signature Certificate (DSC) is received. It is  registration number generated for every director or partner and used for its related applications and compliances. 
• Company name reservation will be applied once, Digital Signature Certificate (DSC) and Director Identification Number (DIN), is received. You will get your choice of entity name subject to name availability and the priority defined in the application. You will apply for its allocation with following documents within the 30 days of name reservation post reservation of your company name: 
  • Memorandum of Association 
  • Article of Association 
  • Proof of Registered Office Address 
  • Notarized Rental Agreement 
  • NOC from property owner 
  • A copy of sale deed or property deed (for an owned property) 
  • Compliance Certificate 
• You will receive Certificate of Incorporation (COI) carrying its Company Identification Number (CIN), Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN) post approval of your allotted name.  

Post Formation Procedure

• You need to arrange Company Stamp post receipt of the Certificate of Incorporation. Then, you need to open bank account in the name of company. 
• You also need to apply for applicable registration as per requirement of your business operations for example: 
  • Goods and Service Tax Identification Number (GSTIN) 
  • Food Safety ad Standard Authority of India Registration Number (FSSAI Number) 
  • Trade License Number 
  • Real Estate Regulatory Authority Registration Number (RERA Registration Number) 
  • MSME Certificate, If your entity is Micro, Small & Medium Enterprise. 

As an individual, you may find it difficult to handle all the operations related to Private Limited Company formation. Hence, now it is time to apply simple strategy which we have explained under General Management Application article under What It Takes To Be Successful series that’s

. So, hire a Chartered Accountant (CA) / Certified Management Accountant (CMA) to handle company formation formalities. 

We have explained the features and formation procedure of Private Limited Company in this article. Now, we will be explaining in detail about Public Limited Company and its incorporation procedure in an upcoming article of the Career and Investment Planning Series.