What is Private Limited Company, and Advantages, Process, types of Pvt Ltd Company

Introduction

A pvt ltd company is a privately-owned business. The company’s management is controlled by private shareholders. The liability arrangement of a private company is similar to that of a limited partnership, where a shareholder’s liability is based on the number of shares they own. As new businesses emerge, it’s important to understand different business structures like proprietorship, LLP, and pvt ltd company. In this blog, we’ll focus on exploring the details of a private limited company.

What is a Pvt Ltd Company?

A pvt ltd company is a business that is owned and run by a small group of people. In this type of company, private stakeholders have control. The liability arrangement of a private limited company is not as strict as that of a limited liability partnership (LLP) or a sole proprietorship. This means that the company’s assets are not at risk in case of a financial crisis. While all partners in a private limited company are responsible for any losses, there is one exception. Shareholders are only liable for losses up to the number of shares they own. In other words, a member’s responsibility to cover business losses is limited to the shares they hold.

What Characteristics Do Pvt Ltd Company Possess?

Limited Liability Structure

Each member or shareholder’s responsibility is limited in a private limited corporation. As a result, even in the event of a loss, the shareholders are obligated to sell their own assets to satisfy the debt. The shareholders’ personal and individual assets, on the other hand, are not in jeopardy.

Minimum Paid-Up Capital

A minimum paid-up capital of INR 1 lakh is required for a private limited company. It could go even higher, as MCA may prescribe from time to time.

Membership

To establish a firm, you will need at least two shareholders, just like any other business. However, because it is still a small organization, the maximum number of members is capped at 200. A minimum of two directors is required to govern the business.

Separate Legal Entity

This is a separate legal entity that will exist in perpetuity. This means that the corporation will continue to exist in the eyes of the law even if all of the members die or the company becomes insolvent or bankrupt. Unless terminated by resolution, the company’s life will be eternal, unaffected by the lives of its shareholders or members.

Types of Pvt Ltd Company

Company limited by share

A company limited by shares is a separate legal entity from its directors and shareholders. This means it can sign contracts and own property in its own name.

The term “limited” refers to the shareholders’ limited responsibility. They are only responsible for the company’s obligations up to the value of their shares in the company. This means that their personal assets are not at risk in case the company faces any liabilities.

Unlimited company

Section 2(92) of the Companies Act of 2013 says that an unlimited company is one where the shareholders have no limit on their liability. This means that an unlimited company can use all of its assets to pay off its debts when it is being closed down.

Company limited by guarantee

A company limited by guarantee doesn’t have shareholders or shares. Instead, guarantors promise to pay a certain amount if the company owes money. Profits are usually not given to the guarantors but are reinvested in the company to support its non-profit goals.

What is the procedure for forming a Private Limited Company in India?

• Get DSC (Digital Signature Certificate)
• Get DIN (Director Identification Number)
• Application for a name availability
• Form SPICE+ INC-32
• MOA and AOA
• TAN and PAN application

Documents needed for setting up Pvt Ltd Company

• Electricity Bill or any other utility bill for the address proof of the Registered Office
• Photograph of all the Directors
• PAN Card of all the Directors
• Self Attested Residential Address Proof of all the partners (Electricity Bill/Latest 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

• A public limited corporation is abbreviated as Ltd., whereas a private limited company is abbreviated as Pvt ltd.
• 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.
• The shares of an Ltd firm are listed on the stock exchange, whereas the shares of a Private limited company are not.
• An Ltd company’s shares are transferred through a stock exchange deal, but a Pvt Ltd company’s shares are transferred with the permission of all shareholders.

Benefits of Private Limited Company

Ease in Raising Funds

A PVT LTD Company can have up to 200 shareholders and another 200 members. Because of these large numbers and the reputation of the private limited company, it is easier to raise capital funds than other types of businesses. As a result, we can claim that when a private limited business is formed, the scope of expansion is greater. Taking debts from banks and other financial institutions is also simple.

Separate Legal Entity

Members and shareholders of a PVT LTD Company are distinct from the firm, implying that the company is a separate legal entity from which none of the members or directors are liable if the company is unable to repay a loan. 

Dual Relationship

A corporation can make a legitimate and effective contract with any of its members under the company form of organization. It is also feasible for a person to be the Chief Executive Officer of a firm and work for it simultaneously. As a result, a person can be a creditor, shareholder, employee, and director of the company all at the same time. 

Existence without interruption

As previously stated, the corporation remains a legal entity until it is lawfully closed down, and it continues to operate even after the death or departure of any of its members. Also, the Share transfer procedure in PVT LTD Company is less hectic as compared to the other business entities. 

Conclusion

Whether a public limited company or a private limited corporation, each has its own set of restrictions. These businesses were formed for a specific purpose, and they must adhere to the laws and regulations set forth by the government of the country. Private Limited Companies, on the other hand, are granted several exemptions and benefits under the Companies Act if they engage themselves in social work.

Suggested Read :

Tax Structures for Pvt ltd Company

LLP Vs Private limited company

Monthly Compliance for Pvt Ltd Companies

Advantages & disadvantages of Pvt ltd Company

Director Appointment in Pvt Ltd Company