Private Limited Company : Type of Business Entity
What is Private Limited Company, and Advantages of Private Limited Company
Table of Content:
- What is a Private Limited Company (Pvt Ltd Company)?
- What Characteristics Do Pvt. Ltd. Companies Possess?
- What is the procedure for forming a Private Limited Company?
- Documents needed for setting up Private Limited Companies
- Difference between LTD and Pvt LTD Company
- Benefits of Private Limited Company
A private limited company is a common name for a privately controlled corporate entity. Private stockholders are in charge of the company’s management. A private company’s liability arrangement is similar to that of a limited partnership, in which a shareholder’s liability is equal to the number of shares held by them.
It’s critical to comprehend the numerous business forms, including sole proprietorship, limited liability, and private limited company, as new businesses are popping up all over the nation. In this blog, we’ll examine a Pvt Ltd business in more detail.
What is a Private Limited Company (Pvt Ltd Company)?
Many start up businesses choose to operate as a private limited company.
A limited corporation is a distinct legal entity unto itself, as opposed to operating as a sole proprietorship or joining a partnership.
Its structure is distinct, and its requirements, which include several tax and legal obligations opened in the new window, are more complicated.
The liability structure of a private corporation is comparable to that of a limited partnership, where a shareholder’s liability is based on the amount of shares they own. It’s critical to comprehend the numerous business forms, including sole proprietorship, limited liability, and private limited company, as new businesses are popping up all over the nation. In this blog, we’ll examine a Pvt Ltd business in more detail.
What Characteristics Do Pvt. Ltd. Companies Possess
- Limited Liability Organization
In a private limited corporation, the accountability of each member or shareholder is constrained. Therefore, even if there is a loss, the shareholders must sell their own property to pay off the debt. On the other hand, the stockholders’ private and individual assets are not at danger.
- Minimum Paid-Up Capital
The term “minimum paid-up capital” refers to the least sum of money that a business must have in paid-up capital in order to operate legally. This represents the sum that the company’s stockholders have contributed by buying stock in the business. Depending on a number of variables, including the sort of company, where it is incorporated, and more, the minimum paid-up capital requirement may change. The minimum paid-up capital requirements for certain types of businesses are set forth in particular legislation in some nations, whilst in others, the requirement may be governed by the bylaws or articles of incorporation of the business. The minimum paid-up capital requirement may occasionally be established by a regulatory body or other government organization.
Like any other business, a firm must have at least two shareholders in order to be formed. The maximum membership limit is 200 due to the organization’s current size. The company must have at least two directors in order to be governed.
- Separate Legal Entity
A company or organization that is legally considered to be separate from its owners or shareholders is referred to as a separate legal entity. In other words, the company is legally independent of its owners and is able to negotiate, take on debt, and file for or defend against lawsuits in its own name.
Limited liability companies (LLCs), partnerships, and corporations are the most typical forms of independent legal entities. Although each of these business models has particular advantages and legal characteristics of its own, they all provide some amount of liability protection to their owners. As a result, the business owners’ personal assets are normally shielded from creditors and they are generally not held personally liable for the debts and obligations of the company.
What is the procedure for forming a Private Limited Company
- Pick a name for your business: The name must be original and distinct from any other company’s name already in use. Searching the Ministry of Corporate Affairs (MCA) database will reveal whether the name is available
- Obtain the Director Identification Number (DIN) and Digital Signature Certificate (DSC): A secure digital key known as a DSC is necessary to submit electronic documents to the MCA. Directors of a firm are given a unique identification number called a DIN.
- Place the Memorandum of Association and the Articles of Association in the following places: The company’s founding documents are the MOA and AOA. They include the policies and guidelines defining how the business is to be run.
- e-filing INC-29 form: This application form is used to submit a company incorporation request. In this form, you must provide information such as the company name, the prospective business ventures, and the names and addresses of the directors.
- Obtain the Certificate of Incorporation: The Certificate of Incorporation, which acts as documentation that your company has been legally registered, can be obtained once the MCA has approved your application.
- Tax registration: You must register your business for a number of taxes, including income tax, value-added tax (VAT), and goods and services tax (GST).
- Obtain the necessary licenses and permits: Depending on the nature of your business, you might need to do this before you can launch.
Documents needed for setting up Private Limited Companies
- Utility bills, such as an electricity bill, can serve as evidence of a registered office’s address.
- Photograph of all the Directors
- PAN Card of all the Directors
- All partners’ self-attested residential address proof (electricity bill, most recent bank statement, mobile bill) (not older than 2 months)
- ID Proof of all the Directors (Driving License/Passport/Voter ID).
Difference between LTD and Pvt LTD Company
- An Ltd company’s shares are listed on the stock exchange, whereas a Pvt ltd company’s shares are not listed on the stock exchange.
- Private limited companies are referred to as Pvt ltd while public limited corporations are referred to as Ltd.
- Unlike shares of Pvt ltd companies, shares of a Ltd company are listed on the stock exchange.
- Shares of a Ltd company can be transferred via a stock exchange transaction, whereas shares of a Pvt Ltd firm can only be transferred with the consent of all shareholders.
Benefits of Private Limited Company
- Ease in Raising Funds
Up to 200 shareholders and an additional 200 members are allowed in a PVT LTD company. It is simpler to raise capital funding for private limited companies than for other kinds of enterprises because of these vast numbers and their good reputation. Therefore, we may assert that the scope of expansion is bigger when a private limited company is established. It is also simple to collect debts from banks and other financial entities.
- Separate Legal Entity
Inferring that the company is a different legal entity from which none of the members or directors are accountable if it is unable to repay a loan, a PVT LTD Company’s members and shareholders are distinct from the business.
- Dual Relationship
Under the company form of organization, a corporation may enter into a binding agreement with any one of its members. It is also possible for someone to serve as the company’s CEO while also working for it. As a result, a person may simultaneously hold the positions of director, shareholder, employee, and creditor.
- Existence without interruption
As previously stated, the corporation continues to exist as a separate legal entity until it is formally dissolved. Additionally, it keeps going even after a member’s passing or departure. Additionally, compared to other commercial entities, the PVT LTD Company’s share transfer process is less complicated.
Each restriction differs depending on whether the company is a public limited company or a private limited corporation. These companies must abide by the rules and laws established by the national government because they were established for a specific purpose. Contrarily, Private Limited Companies are given a number of exemptions and advantages under the Companies Act if they carry out social activities.
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