What is a Private Limited Company?
A privately held business entity, a Private Limited Company (Pvt. Ltd.), has ownership limited to specific shareholders. Its shares cannot be publicly traded, unlike those of a Public Limited Company.
- It has been designed for small and medium sized businesses.
- The value of shares owned limits the liability of shareholders.
- Shares cannot be offered to the general public or listed on stock exchanges.
How to Register a Private Limited Company?
- Get DSC & DIN: Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for directors.
- Reserve Company Name: Apply via RUN service on the MCA portal.
- Prepare MOA & AOA: Draft the Memorandum of Association (MOA) and Articles of Association (AOA).
- File SPICe+ Form: Submit incorporation documents on the MCA portal.
- Get Certificate of Incorporation: MCA issues COI, PAN & TAN after approval.
- Open a Bank Account: Use COI and PAN to open a current account.
- Register for GST & Licenses (if needed): Required if turnover crosses the threshold.
Advantages of a Private Limited Company
The Private Limited Company offers several plus points:
- Limited Liability: Shareholders are only responsible for the amount they invest, protecting personal assets.
- Separate Legal Entity: The company is independent of its owners, ensuring stability and continuity.
- Easy Fundraising: Investors and banks prefer Pvt Ltd companies for funding.
- Ownership Control: Shares are privately held, preventing unwanted interference.
- Better Credibility: Pvt Ltd companies gain more trust from clients and investors.
Differences between an Enterprise and Private Limited Company
| Aspect | Enterprise | Private Limited Company |
| Ownership | Can be owned by individuals, partnerships, or corporations. | Owned by shareholders with limited liability. |
| Legal Status | May or may not be a registered entity. | A legally registered entity under the Companies Act. |
| Liability | Depends on the type of enterprise; can be unlimited. | Limited liability for shareholders. |
| Share Trading | Not applicable or varies by structure. | Shares cannot be publicly traded. |
| Regulation & Compliance | Fewer legal formalities and compliance requirements. | Must follow strict regulations under the Companies Act, including audits and filings. |
| Taxation | Taxation depends on the type of enterprise (sole proprietorship, partnership, etc.). | Taxed as per corporate tax laws, often lower than individual tax rates. |
| Fundraising | Limited funding options, mainly from personal savings or small loans. | Easy access to bank loans, venture capital, and investor funding. |
| Perpetual Existence | May dissolve if the owner exits or passes away. | Continues to exist regardless of changes in ownership. |
| Credibility & Trust | May not be as credible for investors and customers. | Higher trust and credibility due to legal registration and compliance. |
Conclusion
An Enterprise offers flexibility and fewer regulations, a Private Limited Company provides credibility, limited liability, and better funding options. Although both of these business structures have own benefits and purposes to serve, it is the sole decision of the owner of a company to choose either of the business types.
Suggested Read :
Difference between Public Limited and Pvt Ltd Company
Difference between LLP and sole proprietorship
CMA Report and Business Valuation : Differences
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