A private (Pvt) limited (Ltd) company is a type of company which allows limited liability to its share holders. Limited liability means that if a company goes bankrupt only the company is liable to pay for it and not its shareholders. This is the most favorable type of company among the latest e-commerce businesses. Minimum shareholders required are 2 and maximum are 50. A company has a separate name and a seal which work as the identification of the company in the eyes of law.
Advantages of Private Limited Company (PLC)
If we consider other forms of business we will vividly understand why a pvt limited is most favorable.
- Limited liability: If a person has a proprietorship, being the owner, he enjoys all profits and suffers all losses and in case of any default in loan payment, his personal assets can be sold by the bank to repay the loan. Same goes for a partnership form of business. It is only in a pvt ltd, that the shareholder pays nothing.
- Existence: a business is the result of our hard work and dedication. Shareholders are mortals, they have an expiry date. With a proprietor’s death, his company dies too, as the proprietor and business are same in the eyes of law. Same happens with a partnership. In case of a pvt ltd company, the death of a shareholder doesn’t culminate in the shutting of the company. It enjoys immortality in the eyes of law.
- Transferability of shares: in a partnership, the partner’s ratio of share capital decides their profits and losses. A partner cannot transfer his shares, as it is not allowed. But in a pvt ltd company, a shareholder can sell his shares at any time. But, he must approach his fellow shareholders first, provided they deny, he can sell them to a new shareholder. This ensures the longevity of the company.
- Raising investment capital: an increased capital investment helps a business very much. But neither a proprietorship, nor a partnership can pool in investment after its incorporation from people other than themselves. It is only a pvt ltd that allows creating new shares and selling them to increase its capital investment. It is a great opportunity to gather capital. Making pvt ltd most desirable.
- Documents required for PLC incorporation
For Indian citizens:
- Proof of identity (directors): PAN needs to be provided, and passport size photo of each director.
- Proof of residence: A proof of residential address is also required. The following documents can be submitted: Passport, Election Card or Voter Identity Card, Ration Card, Driving License, Electricity Bill, Telephone Bill, and Aadhaar Card.
- Proof of registered office address: proof of valid registered office must be submitted within 30 days of the company’s formation. The following documents can be submitted:
- The registered document of the title of the premises of the registered office in the name of the company; OR
- The notarized copy of lease / rent agreement in the name of the company along with a copy of rent paid receipt not older than one month
- The authorization from the Landlord (Name mentioned in the Electricity Bill or Gas Bill or Water Bill or Property Tax Receipt or Sale Deed) to use the premises by the company as its registered office. This is usually referred to as NOC from Landlord;
- Proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or document, which is not older than two months.
- There should also be a No Objection Certificate by the landlord for having the registered office in his/her premises and this person must submit his/her identity proof and address proof.
- Proposed company names.
- Proof of identity and address proof of shareholders.
- If shareholder is an institute, a certificate of incorporation of the Body Corporate along with the resolution passed by the Body Corporate to subscribe to the shares of the company under incorporation.
For foreign citizens:
- Proof of identity: notarized passport.
- Notarized address proof, D/L, residence card, bank statement, and government issued form of identity with address.
Procedure to incorporate a Pvt. Ltd. company
- Obtain Digital Signature Certificate (DSC) – Obtain a Digital Signature Certificate from authorized DSC issuing authority.
- Obtain Director Identification No. (DIN) – Make Application in Form DIR-3
- Register DSC in the name of Director on MCA portal
- Apply for Reservation of Name – Application in Form No. INC.1. It will be reserved for a period of 60 days
- Drafting and registration of Memorandum and Articles of Association.
- Filing of INC -7, DIR 12 & INC 22 Adoption of Memorandum of Association and Adoption of Articles of Association
- Commencement of business – Mandatory to file Declaration with ROC in Form No. INC.21
- Registered Office – A company shall have a registered office within 15 days of Incorporation and it shall file Form No.INC.22 to verify the same.
Cost of Registering a company
The cost of registration varies from vendor to vendor, it normally cost around 13,000 to 15,000 INR on 1 lakh capital investment.
Time Taken to Register a company
The time required for the incorporation is 14-20 working days.