Private Limited Company

What Is a Private Limited Company Under the Companies Act, 2013?

A Private Limited Company is a popular and legally recognized form of business entity in India, governed by Section 2(68) of the Companies Act, 2013. It is incorporated as a private company and operates with a prescribed paid-up share capital, while strictly following specific legal conditions laid down in its Articles of Association.

Under the law, a private limited company must restrict the transfer of its shares, ensuring that ownership remains within a closed group. Except in the case of a One Person Company (OPC), it can have a maximum of 200 members. When shares are held jointly by two or more individuals, they are treated as one single member for counting purposes.

Importantly, the Act excludes certain individuals from the member limit. Employees who hold shares while in employment, as well as former employees who continue to hold shares after leaving the company, are not counted toward the 200-member cap. Additionally, a private limited company is prohibited from inviting the general public to subscribe to its shares or other securities, which clearly distinguishes it from public companies.

From a structural perspective, a private limited company has a separate legal identity, meaning it exists independently of its promoters or shareholders. This ensures continuity of business and builds credibility. One of its most significant advantages is limited liability, where shareholders are only liable up to the unpaid amount on their shares, protecting their personal assets.

In India, nearly 93% of registered companies are private limited companies, highlighting their widespread acceptance. This dominance is mainly due to ease of incorporation, simpler compliance requirements, operational flexibility, and easier closure procedures when compared to public or listed companies. As a result, private limited companies are often the preferred choice for startups, growing businesses, and entrepreneurs seeking a balance between legal protection and operational efficiency.

Overall, the private limited company structure offers a secure, compliant, and scalable business model, making it one of the most trusted forms of company registration in India.

What Are the Key Benefits of a Private Limited Company in India?

1. Distinct Legal Identity

A private limited company enjoys a separate legal identity under the Companies Act, 2013. This means the company is treated as an independent legal person, distinct from its shareholders and directors. It can own assets, enter into contracts, and conduct business in its own name. Since the company and its members are considered separate in the eyes of law, shareholders are not personally responsible for the company’s obligations. This concept makes the company an artificial legal person with its own rights and duties.

2. Limited Liability Protection

One of the biggest advantages of a private limited company is limited liability. The liability of shareholders is restricted only to the unpaid amount on the shares they hold. Unlike proprietorships or partnerships, personal assets of members are not at risk for company debts. This feature provides financial security and encourages entrepreneurs to take calculated business risks.

3. Ability to Own and Transfer Property

A private limited company can purchase, hold, use, and sell property in its own name. The assets owned by the company do not belong to individual shareholders. As long as the company exists, no member can claim ownership over company property. The company itself is the lawful owner, which ensures continuity and asset protection.

4. Capacity to Sue and Be Sued

Being an independent legal entity, a private limited company has the legal capacity to initiate legal proceedings or face lawsuits in its own name. Shareholders or directors are not personally involved in legal actions related to the company unless specifically required by law. This further strengthens the company’s independent legal standing.

5. Perpetual Succession

A private limited company enjoys perpetual succession, meaning its existence is not affected by the death, resignation, insolvency, or retirement of its members or directors. Ownership may change over time, but the company continues to exist until it is legally dissolved. This ensures long-term business stability and continuity.

6. Ease of Raising Funds

A private limited company can raise capital by issuing shares to its members or raising funds through debt instruments. Additionally, it has the flexibility to convert into a public limited company in the future, allowing it to raise funds from the general public through an IPO and stock exchange listing. This scalability makes it suitable for growing businesses and startups.

7. Higher Business Credibility

Private limited companies are registered with the Ministry of Corporate Affairs (MCA), making their details publicly available in government databases. This registration enhances business credibility and trust among banks, investors, vendors, and clients. It also makes opening bank accounts, obtaining loans, and entering into business contracts much easier compared to unregistered business forms.

8. Easy Entry and Exit

Incorporating a private limited company is relatively simple, requiring registration with the MCA and issuance of a Certificate of Incorporation. Similarly, if the business owner decides to close operations, the company can be legally wound up or struck off by following prescribed procedures after settling liabilities. This makes entry and exit into the corporate sector convenient.

9. No Minimum Capital Requirement

As per the Companies Act, 2013, there is no minimum paid-up capital requirement for incorporating a private limited company. Entrepreneurs can start their business even with zero paid-up capital, making it accessible for startups and small businesses.

What Are the Disadvantages of a Private Limited Company?

1. Restriction on Public Investment

A major drawback of a private limited company is the prohibition on inviting the public to invest in the business. As per company law, a private company cannot issue shares or securities to the general public. Investments can only be accepted from its existing members or through private arrangements. This legal restriction limits the company’s ability to raise large-scale capital and may slow down expansion plans compared to public limited companies.

2. Limited Transferability of Shares

In a private limited company, shares are not freely transferable. A shareholder cannot sell or transfer shares to an outsider without prior approval from the Board of Directors. In most cases, the shares must first be offered to existing members. Only if the current shareholders decline can the shares be transferred to a third party. These restrictions, imposed through the Articles of Association and supported by law, reduce liquidity and flexibility for shareholders.

Why Private limited company?

1. EASY WAY TO JUMP INTO CORPORATE WORLD

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

2. 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.

3. 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 public limited company you need to have 5 Lakh as minimum paid up capital

4. 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.

What Documents Are Required for Incorporating a Private Limited Company in India?

To incorporate a Private Limited Company under the Companies Act, 2013, certain documents must be submitted for verification of the proposed directors, shareholders, and the registered office address. These documents help establish identity, address, and legal ownership. The required documents are listed below in a clear and structured manner.

1. Personal Documents of Proposed Directors and Shareholders

a) PAN Card

• PAN card is mandatory for all Indian directors and shareholders.
• It is required for identity verification and issuance of PAN and TAN of the company.

b) Aadhaar Card

• Aadhaar card is commonly required for authentication and DSC-related verification.
• It helps in faster processing of incorporation forms.

c) Photograph

• Recent passport-size photograph of each proposed director.

2. Identity Proof of Directors and Members (Any One Required)

• Passport
• Voter’s Identity Card
• Driving Licence

These documents confirm the legal identity of the individuals associated with the company.

3. Address Proof of Directors and Members (Any One Required)

The document should generally be recent (not older than two months):

• Telephone bill
• Mobile bill
• Bank statement
• Electricity bill

These proofs are used to verify the residential address of directors and shareholders.

4. Address Proof of the Registered / Principal Place of Business

To establish the company’s registered office, any one of the following documents is required:

• Utility bill such as electricity bill, water bill, gas bill, or telephone bill
• Rent agreement along with rent receipt (if the premises are rented)
• Proof of ownership, such as property registry or sale deed (if the premises are owned)

What Is the Step-by-Step Process for Incorporating a Private Limited Company in India?

The incorporation of a Private Limited Company in India is carried out through a fully online procedure prescribed by the Ministry of Corporate Affairs (MCA) under the Companies Act, 2013. The entire process is streamlined through the SPICe Plus (SPICe+) system.

Step 1: Apply for Company Name Reservation

The first step in company incorporation is reserving the proposed company name through Part A of the SPICe Plus (SPICe+) form.

• Applicants can suggest up to two preferred names along with the selected business activity.
• The application is reviewed by the Central Registration Centre (CRC).
• If the proposed names are rejected, fresh names can be resubmitted within 15 days from the date of rejection.

Step 2: Obtain Digital Signature Certificate (DSC)

The next step is to apply for a Digital Signature Certificate (DSC).

• DSC is mandatory for all proposed directors and shareholders to digitally sign incorporation forms.
• If directors and shareholders are different individuals, DSC must be obtained for both.

Step 3: Filing of SPICe Plus (SPICe+) Form

Once the company name is approved, it remains valid for 20 days from the date of approval. Within this period, Part B of the SPICe+ form must be completed and submitted online.

SPICe Plus is an advanced integrated form that allows the applicant to obtain multiple registrations in a single application, including:

• Company incorporation
• Director Identification Number (DIN)
• PAN
• TAN
• EPFO registration
• ESIC registration
• GST registration (optional)

Step 4: Enter Company and Shareholder Details in Part B

Part B of SPICe+ requires detailed information such as:

• Number of directors and shareholders
• Authorized and paid-up share capital
• Shareholding pattern
• Registered office address
• Personal details of directors and members

Supporting documents are uploaded as attachments for verification.

Step 5: Draft and File MOA and AOA

• The Memorandum of Association (MOA) defines the company’s objectives and scope of activities.
• The Articles of Association (AOA) outline internal management rules and operational procedures.

These documents are prepared and filed electronically along with the SPICe+ form.

Step 6: AGILE-PRO and Statutory Registrations

Through the AGILE-PRO form, the company can apply for:

• GSTIN
• EPFO
• ESIC
• Professional Tax (where applicable)
• Bank account opening

All forms are digitally signed using DSC and uploaded on the MCA portal.

Step 7: Issuance of Certificate of Incorporation

After successful verification by the Registrar of Companies (ROC), the Certificate of Incorporation (COI) is issued. The certificate includes:

• Company Identification Number (CIN)
• PAN and TAN

From this stage, the private limited company becomes a legally registered entity and can commence business operations.

What are the Compliance of Private Limited Company as per companies act 2013?