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Private Limited Company

Under section 2 (68) of the company act, 2013 Private company mean company incorporated under the company’s act 2013 having paid-up share capital as may be prescribed, and which by its articles and has a separate legal entity, with the limited liability

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Introduction

Under section 2 (68) of company act, 2013 Private company mean company incorporated under company’s act 2013 having paid-up share capital as may be prescribed, and which by its articles, —

A. Restricts the right to transfer its shares:

B. The maximum number of shareholders is restricted to 200 in case of a Private Limited Company. The following should not be counted as shareholders of the Company:

i. A person who or was is in the employment of the company shall not be counted

ii. a shareholder who was previously in the employment of the Company shall not be counted

C. Prohibits any invitation to the public to subscribe for any securities of the company

It is a form of business which is came into existence through the Companies Act, 2013 and has separate legal entity from that of its promoter. One of the distinctive features of a Private limited is that the financial liability of a shareholder is limited to the value of their shares.

Out of total business incorporations in India, 93% are in the form of a private limited company, because of its easy to form and easy to dissolve and has less compliance as per the provision of law as compared to a public limited or listed company.

Advantages and Disadvantages of Private Limited Company

Advantages

Lesser Income Tax

A Private Limited Company enjoys a reduced tax bracket of 15% in Manufacturing business and only 22% for other businesses. Earlier the rate of income tax used to be 30% plust applicable cess but the Government of India has reduced the rates of Income Tax applicable on Companies in accordance with the Ease of Doing Business in India initiative.

➲ Distinct Identity

An entity means something that has a true existence; an object with a distinct existence. A company is a legal entity and a legal entity established under the Law. Hence a company is a form of the organization having broad legal potential and that may own property and also incur debts in its own name. The members of the company have no liability towards company debts because the company and members both are separate people in the eye of the law, hence company is an artificial person having a separate legal identity.

➲ Liability is Limited

Limited Liability means the status of being legally responsible for a company's debts only to a limited sum. Like proprietorships and partnerships, the Member's responsibility for the company's debts is limited in a limited liability company. In other words, the responsibility of a company's members is limited only to the sum of the face value of the shares they take over.

➲ Acquiring property

A company may buy, possess, enjoy and alienate property under its own name, becoming a legal individual. No shareholder can claim the company's property as long as the company is a company. The shareholders are not the actual owners of the company. The company itself is the real proprietor.

➲ Capacity to sue and be sued in its own name

To sue means initiating legal action against or putting a suit before a court of law. Just like one person in the name of another person can bring legal action against another in his / her own name, a company being an independent legal entity can sue and be sued in his / her own name too.

➲ Perpetual Succession

The private limited company, being a separate legal entity in the eyes of law, is known by its name. Thus, director/member cessation/death does not affect the Private Limited Company's existence. Members may come and members will leave but the company goes forever.

➲ Easy Funding

A private limited company can raise funds from its member after issuing shares to them or issuing debt securities to them. And the private limited company has the opportunity to convert itself into public limited after which it can raise money from the general public at large after listing its shares in the stock exchange and taking IPO in the market.

➲ Business credibility

If a business is established as a proprietorship or partnership, it is not registered with the Ministry of Corporate Affairs and can not be found in the databases of the online company or LLP. Often there is no reliable evidence of the existence of the company, making it difficult to open a bank account, acquire trustworthy clients, or receive credit from vendors.

➲ Easy entry & Exit

A private limited company is an easy way to get into the corporate market, only you need to get register your form of the company under the ministry of corporate affairs and obtain the certificate of incorporation and it has an easy existed option too if you want to shut down your business you only need to inform to ministry through required form and you take exist legally after settling your liability.

➲ No Minimum Capital Required

As per the point of view of incorporation, there is no minimum capital required for incorporating a private limited company. As per company law 2013 you can start a private limited company with 0 paid-up capital.


Disadvantages:

➲ Prohibition on the invitation of the public for investment

A private limited company can not invite the public at large for making the investment in the company, apart from its member no person is allowed to make the investment in the company. It is prohibited from company law 2013.

➲ Transferability of shares

In a private limited company person, a shareholder cannot transfer its share to the general public (non-member) unless it is approved by the board of the company. Under the private limited company, the share firstly transfers to its member if they refuse to accept then only it can be transferred to the third person, this restriction is imposed by law.

Why should I start my business as a Private Limited Company

Lesser Income Tax

One of the most attractive features of a Private Limited Company is that enjoys a reduced tax bracket of 15% in Manufacturing business and only 22% for other businesses. Earlier the rate of income tax used to be 30% plust applicable cess but the Government of India has reduced the rates of Income Tax applicable on Companies in accordance with the Ease of Doing Business in India initiative.

➲ Easy to jump into a corporate world

Private Limited Company form of business is an easy and simple way to get into the corporate world and it is an easy way for a good start-up.  As compare to Sole Proprietorship, it is a better option for the start-up as in this form of business liability of the member is limited. It is a good platform for incorporating a company form of business having ownership.

➲ Business credibility

If a business is established as a proprietorship or partnership, it is not registered with the Ministry of Corporate Affairs and cannot be found in the databases of the online company or LLP. Often there is no reliable evidence of the existence of the company, making it difficult to open a bank account, acquire trustworthy clients, or receive credit from vendors.

➲ No Minimum Capital Required

As per the point of view of incorporation, there is no minimum capital required for incorporating a private limited company. As per company law 2013, you can start a private limited company with "0" paid-up capital. Whereas if you want to incorporate a public limited company you need to have 5 Lakh as minimum paid-up capital

➲ Liability is Limited

Limited Liability means the status of being legally responsible for a company's debts only to a limited sum. Like proprietorships and partnerships, the Member's responsibility for the company's debts is limited in a limited liability company. In other words, the responsibility of a company's members is limited only to the sum of the face value of the shares they take over.

Process of Incorporating a Private Limited Company

Private Limited Company incorporations process:

STEP 1: APPLY FOR THE DESIRED NAME

The first step in incorporating a company is for reserving the name of the proposed company in part-A of SPICe Plus (SPICe+) form. In this form choose your business activity and file for two proposed names, if CRC will reject the proposed name then file again with two new names within a certain time limit from the date of rejection (15 days).

STEP 2: APPLY FOR A DIGITAL SIGNATURE CERTIFICATE (DSC)

The process of incorporation of a Company is 100 per cent online in India. Hence, we need to apply for a DSC (Digital Signature Certificate), which will be used for electronically signing the forms by proposed directors and proposed members respectively. DSC has to be mandatorily applied for each and every single member/shareholder and director of the Company.

STEP 3: FILL THE APPLICATION FOR INCORPORATION (SPICe plus Form - SPICe+)

Once, your name gets reserved under it will be valid for 20 days from the date of approval, within 20 days you have to fill-up the respective application form for incorporation along with all the requisite attachments and documents and upload it online. SPICe+ is an advanced form combination of 8 forms in one. Through this proposed company can apply for at once:

  • Name reservation
  • Incorporation
  • Apply for DIN
  • TAN
  • PAN
  • EPFO
  • ESIC
  • GSTIN

Next step is to fill the part-B of SPICe + which will contain all the detail related to incorporating company like number total number of directors and members, Authorized share capital, paid-up capital, number of share hold by members, company registered address detail, directors and member detail and will required attachments for proof. Then draft the MOA (memorandum of association) and AOA (Article of Association) of the proposed company, then fill form required for EPFO and ESIC registration with detail, then Fill the AGILE form for procuring GSTIN. After filling all these attach the signature and then upload it on the MCA website.

STEP 4: CERTIFICATE OF COMMENCEMENT OF BUSINESS

Once the application of incorporation of the company is approved and the Certificate of Incorporation is issued by the ROC, the Company shall file for seeking approval for commencing the business within 180 from the date of incorporation of the Company.

Documents required for Incorporating Private Limited Company

A. ID proof of proposed Directors and members:

i. PAN card (Mandatory)

ii. Aadhar card (Mandatory)

iii. Photograph of the proposed director (mandatory)

iv. Passport  or Voter’s ID or Driving License

B. Address proof of proposed members and directors (any one of  the following):

i. Telephone bill

ii. Mobile Bill

iii. Bank statement

iv. Electricity bill

C. Address proof for the principal place of business of the proposed company (any one of  the following)

i. Utility bill like telephone bill, electricity bill, gas bill, water bill

ii. Rent agreement with rent slip

iii. Proof of ownership

Compliances of Private Limited Company as per the Companies Act 2013.

COMPLIANCE CALENDAR FOR COMPANIES ACT, 2013

S. No

FORM

PURPOSE

TIMELINE

1.

MSME Form I

Companies who get supplies of goods or services from micro and small enterprises and whose payments to micro and small enterprise suppliers exceed 45 days from the date of acceptance or the date of deemed acceptance of the goods or services shall have to file details of all outstanding dues to Micro or small enterprises suppliers existing on 22nd January 2019.

30 days from the date of deployment of e-form in the MCA portal

2.

Form DPT-3

Initial Return for disclosure of details of outstanding money or loan received by the company but not considered as deposits in terms of rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014.

22-04-2019


Note: Every company (other than Government company) shall file a onetime return of outstanding receipt of money or loan from 01st April, 2014 till 22nd January, 2019, which are not considered as deposits, in Form DPT-3 within ninety days of 22nd January, 2019.

3.

Active Form INC -22 A

Every company incorporated on or before the 31st December, 2017 shall file the particulars of the company and its registered office, in e-Form ACTIVE (Active Company Tagging Identities and Verification).

25-04-2019

4.

e-form DIR 3 KYC

Application for KYC of Directors for the year ending 31.03.2019.

30-04-2019

5.

Form BEN 1

Every individual, who is an SBO in a Reporting Co. shall file Form BEN 1 within ninety days from the commencement of the SBO Rules (i.e . 8th February 2019)

08-05-2019

6.

Form BEN 4

The Reporting Co. shall issue Notice to members (other than individuals) holding not less than 10% of its shares or voting rights or right to receive the dividend, seeking information about SBO.

Not specified

but the maximum time limit of 90 days for an individual to furnish Form BEN 1

7.

Form BEN-2

Filing of e-form BEN-2 by the Reporting Co. under the Companies (Significant Beneficial Owners) Rules, 2018 (as amended by the Companies (SBO) Amendment Rules, 2019.  

30 days from the date of receipt of form BEN-1.

8.

MGT-7

Annual filing

In within 60 days from holding of AGM

9.

AOC-4

Financial Statement

In within 30days from holding of AGM

10.

ADP-1

 

Appoint Auditor

Within 15days of meeting in which auditor is appointed

Applicable Taxes

 

Particulars

The tax rate for AY 2019-20

Income Tax

For domestic company

➲ Gross turnover is up to INR 250 crore

 

➲ Gross turnover exceeding INR 250 crore

For Foreign company

➲ Royalty or fees earned from government or any Indian concern for technical services under an agreement concluded before

 

➲ Other income

 

25%

 

30%

 

50%

 

 

40%

GST

If company turnover is exceeding INR 20 Lakh in preceding  Financial year then it is mandatory to get register into GST

TDS

The company falls within the ambit of the provision related to TDS deduction (to read more about it click here)

Customs

The company which import or export product to a country outside India need to pay custom duty

Professional tax

It is imposed by the state government, levied under Article 276 (2) of the Indian constitution, professional tax is deducted by the employer for the salaries of employees every month and remitted to state govt.  

Business Activity list as per MCA

Categories

Divisions (Codes)

Agriculture and Allied Activities

➲Agriculture, Hunting and related Service activities

➲Forestry, logging and related Service activities

➲Fishing, Operation of fish hatcheries and fish farms;

➲Service activities incidental to fishing

Mining & Quarrying

➲Mining of coal and lignite, extraction of peat

➲Extraction of crude petroleum and natural gas, service activities incidental to oil and gas extraction excluding surveying  

➲Mining of uranium and thorium ores

➲Mining of metal ores

➲Other Mining and Quarrying

Manufacturing (Food stuffs)

➲Manufacture of food products and beverages

➲Manufacture of tobacco products

Manufacturing (Textiles)

➲Manufacture of textiles

➲Manufacture of wearing apparel, dressing and dyeing of fur

Manufacturing (Leather & products thereof)

➲Tanning and dressing of leather, manufacture of luggage handbags, saddlery & harness and footwear  

Manufacturing (Wood Products)

➲Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plating materials

Manufacturing (Paper & Paper products; Publishing, printing and reproduction of recorded media)

➲Manufacture of paper and paper products

➲Publishing, printing and reproduction of recorded media

Manufacturing (Metals & Chemicals, and products thereof)

➲Manufacture of coke, refined petroleum products and nuclear fuel

➲Manufacture of chemicals and chemical products

➲Manufacture of rubber and plastic products;

➲Manufacture of other non-metallic mineral products ;

➲Manufacture of basic metals

➲Manufacture of fabricated metal products, except machinery and equipments  

Manufacturing (Machinery & Equipments)

➲Manufacture of machinery and equipment n.e.c ;

➲Manufacture of office, accounting and computing machinery

➲Manufacture of electrical machinery and apparatus n.e.c ;

➲Manufacture of radio, television and communication equipment and apparatus ;

➲Manufacture of medical, precision and optical instruments, watches and clocks

➲Manufacture of motor vehicles, trailers and semi-trailers  

➲Manufacture of other transport equipment  

Manufacturing (Others)

➲Manufacture of furniture; manufacturing n.e.c ➲Recycling  

Electricity, Gas & Water companies

➲Electricity, gas, steam and hot water supply  

➲Collection, purification and distribution of water  

Construction

➲Construction

Trading

➲Sale, maintenance and repair of motor vehicles and motor cycles; retail sale of automotive fuel ;

➲Wholesale trade and commission trade, except of motor vehicles and motorcycles

➲Retail trade, except of motor vehicles and motorcycles, repair of personal and household goods

➲Hotels and Restaurants  

Transport, storage and Communications

➲Land transport; transport via pipelines  

➲Water Transport

➲Air Transport

➲Supporting and auxiliary transport activities, activities of travel agencies

➲Post and telecommunications  

Finance

➲Financial intermediation, except insurance and pension funding ;

➲Activities auxiliary to financial intermediation  

Insurance

➲Insurance and pension funding, except compulsory social security  

Real Estate and Renting

➲Real estate activities ;

➲Renting of machinery and equipment without operator and of personal and household goods

Business Services

➲Computer and related activities  

➲Other Business Activities

Community, personal & Social Services

➲Research and Development

➲Public Administration and Defence, compulsory social security

➲Education  

➲Health and Social Work  

➲Sewage and refuse disposal, sanitation and similar activities

➲Activities of membership organizations n.e.c.  

➲Recreational, cultural and sporting activities (

➲Other Service activities  

➲Activities of private households as employers of ➲domestic staff;

➲Undifferentiated goods-producing activities of private households for own use

➲Undifferentiated service-producing activities of private households for own use

➲Extra territorial organizations and bodies

FAQs

Q. What is private limited company?

A. Under section 2 (68) of company act, 2013 Private company mean company incorporated under company’s act 2013 having paid-up share capital as may be prescribed, and which by its articles, —

A. Restricts the right to transfer its shares:

B. The maximum number of shareholders is restricted to 200 in case of a Private Limited Company.

 The following should not be counted as shareholders of the Company:

i. a person who or was is in the employment of the company shall not be counted

ii. a shareholder who was previously in the employment of the Company shall not be counted

C. Prohibits any invitation to the public to subscribe for any securities of the company

It is a form of business which is came into existence through the Companies Act, 2013 and has separate legal entity from that of its promoter. One of the distinctive features of a Private limited is that the financial liability of a shareholder is limited to the value of their shares.

 

Q. Pre-requisite for incorporating a private limited company?

A. As per company act 2013 for incorporating a private limited company there is a minimum requirement of:

Minimum number of director-2

Minimum number of shareholder-2

Minimum paid-up capital- 0 (although minimum capital should be there so that bank account can be open)

 

Q. Documents required for incorporating company?

A. ID proof of proposed Directors and members:

i. PAN card (Mandatory)

ii. Aadhar card (Mandatory)

iii. Photograph of the proposed director (mandatory)

iv. Passport  or Voter’s ID or Driving License

B. Address proof of proposed members and directors (any one of  the following):

i. Telephone bill

ii. Mobile Bill

iii. Bank statement

iv. Electricity bill

C. Address proof for the principal place of business of the proposed company (any one of  the following)

i. Utility bill like telephone bill, electricity bill, gas bill, water bill

ii. Rent agreement with rent slip

iii. Proof of ownership

 

 

  1. Q. Government fees for incorporating company?
  2. A. Government fee varies for state to state as the stamp duty varies from state to state as per state stamp act depending upon the authorized capital of the proposed company.

Comparison between different forms of company

Particulars

Private Limited

Company

Public Limited

company

Limited Liability

Partnership

 Definition

Private company means a company incorporated under the Companies Act, 2013 having paid-up share capital as may be prescribed, and which by its articles, —

  1. Restricts the right to transfer its shares:

Except in case of OPC, limits the number of its member to two hundred

Public Limited Company is a type of Company with the following features:

➲ Is not a private company

LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.

It is a form of business which is came into existence through the LLP act 2008. It is a form of business having separate legal entity, is liable to the full extent of its assets but the liability of the partners is limited to their agreed contribution in the LLP.

Minimum

Capital

Requirement

NO minimum capital is required

5 Lakh

No minimum Capital is required

Minimum

number of

members

Minimum 2

Minimum 7

Minimum 2 designated partner/ partner

Minimum

Number of

Directors

Minimum 2

Minimum 3

Minimum designated partner 2

Compliance

Less compliance as compare to Ltd company

More compliance

Less compliance

Name ending with

PVT LTD (Private Limited Company)

LTD (limited company)

LLP

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