A private limited company is a privately held business entity held by private stakeholders. The liability arrangement, in this case, is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them.
Private limited company definition as per Section 2 (68) of the Companies Act, 2013 is A Company having a minimum paid-up share capital as may be prescribed
1. Restricts the right to transfer its shares
2. Except in case of One Person Company, limits the number of its members to two hundred
3. Prohibits any invitation to the public to subscribe for any securities of the company.
With the startup ecosystem booming across the country and more and more people looking to do something on their own, there is a need to be well-acquainted with different business registration types, i.e. sole proprietorship, limited liability company, and private limited company.
Private Limited Company
A private limited company, also known as Pvt Ltd company, is an organisation that limits the owners’ liability and restricts the ability to transfer its shares. The maximum number of shareholders is 50. A private limited company is registered under the Companies Act 2013.
Private limited companies are popular among small and medium-sized businesses (SMEs) due to their flexibility, limited liability protection, and simplicity of ownership control.
Private limited companies have an advantage over public companies in terms of long-term investment, keeping data confidential, operational independence, and flexibility.
Characteristics of a Private Limited Company
1. Members
The act mandates that a minimum of two shareholders are required to start such a company, while the limit for maximum number of members is fixed at 200.
2. Directors
The Act mandates that a private limited company must have a minimum of two directors, while the maximum number of directors is 15.
3. Limited Liability Structure
In a private limited company, the liability of each member or shareholder is limited. Therefore, even in the case of loss under any circumstances, the shareholders are liable to sell their assets for repayment. However, the personal and individual assets of the shareholders are not at risk.
4. Separate Legal Entity
This is a separate legal entity and continues in perpetual succession. This means that even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual, not affected by the lives of its shareholders or members unless dissolved by way of resolution.
5. Minimum Paid-Up Capital
A private limited company is required to have and maintain a minimum paid-up capital of ₹1 lakh. It could go higher, as prescribed by MCA from time to time.
Types of Private Limited Company
1. Company Limited by Shares In these companies, the members’ liability is limited to the nominal share amount as mentioned in the Memorandum of Association. The shareholder cannot be held liable or asked to pay more than his/her share capital invested in the company.
2. Company Limited by Guarantee In a private limited company limited by guarantee, the members’ liability is limited to the amount of liability each member undertakes in the Memorandum of Association. Consequently, members of a Private Limited Company Limited by Guarantee can not be held accountable for a sum greater than the amount of guarantee performed by the member in the Association Memorandum.
Furthermore, the shareholder’s guarantee in a company Limited by Guarantee can be sought only in the case of the company winding-up. The guarantee of the members of a Company Limited by Guarantee can not be withdrawn when the company is a going concern.
3. Unlimited Companies Unlimited corporations are those types of businesses that have no restrictions on their members’ liability. Each member’s liability extends over the entire amount of the company’s debts and liabilities. Hence, an unlimited company’s creditors have the right, if wound up, to impose the company’s debt and liabilities on shareholders.
Private Limited Company Examples
- Google India Pvt. Ltd. A subsidiary of Google LLC
- Amazon Retail India Private Limited: An online shopping platform
- Microsoft Corporation (India) Private Limited: An information technology company with its registered office in Delhi.
Requirements to Start a Private Limited Company
Name of the company
Choose an original and legally appropriate name for your firm. Verify that the chosen name fulfils the naming requirements. If the name is accepted, it will be reserved for 20 days, during which the company must be established legally.
Shareholders and directors
A private limited company requires two shareholders, at the very least. The early shareholders of a company are collectively known as promoters. The promoters have complete control over the ownership ratio.
At least two directors are necessary. They must qualify under Section 164 of the Companies Act.
Registered office address
A registered Office is where a company keeps its official documents and accounts. Under Section 12 of the Companies Act of 2013, companies must always maintain a registered office.
Digital signature certificates
The application process for company incorporation is entirely digital. To complete it, fill out a form and submit it online with the relevant documents. A digital signature is the computerised version of a physical signature but is encrypted for further protection, making it irreversible and unique.
FAQs
What is Pvt Ltd full form?
The full form of PVT LTD is a private limited company.
Is a private company better than a public?
Private companies have the upper hand over public companies concerning investment in long-term strategies, keeping the values of their shares and financial figures discreet, freedom, and flexibility of operations.