What is Private Limited Company, and Advantages of Private Limited Company

Introduction

A privately-held corporate entity is often referred to as a private limited company. 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. With new firms springing up all over the country, it is important to understand the various business structures, such as sole proprietorship, limited liability, and private limited company. In this blog, we’ll take a closer look at a Pvt Ltd company.

What is a Private Limited Company (Pvt Ltd Company)?

A Private Limited Company is a type of business that is owned and operated by a small group of people. Private stakeholders are in charge of such entities. A Pvt. Ltd. company’s liability arrangement is less severe than that of an LLP or a sole proprietorship, which puts firm assets at risk in the event of a financial crisis. Although all partners in a Pvt. Ltd. corporation are responsible for the company’s loss, there is one exception. Shareholders can be subjected to such losses up to the number of shares held by them. Meaning, a member’s liability for recouping a business loss is limited to the number of shares they own.

What Characteristics Do Pvt. Ltd. Companies 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.

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 Private Limited Companies

• 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 Pvt ltd 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.