Private corporations are defined under the Companies Act of 2013. According to that definition, private corporations are businesses whose bylaws restrict the transferability of shares and forbid general public subscription. The primary characteristic that separates private companies from public companies is this one.
The Section further states that private corporations (apart from one-person businesses) may have no more than 200 members. The number does not include members who are also current or previous employees. Additionally, if more than two people jointly possess shares, they are classified as a single member.
Previously, this term required private corporations to have a minimum paid-up share capital of Rs. 1 lakh, but an amendment made in 2005 abolished this condition.
Characteristics of Private Companies
The following characteristics set private corporations apart from other forms of businesses:
· There is no minimum capital requirement anymore. Previously, a minimum paid-up share capital of Rs. 1 lakh was necessary.
· Maximum 200 members, minimum 2 members: A private corporation may have as little as two members (although one member suffices if it is a one-person company) and as many as 200 members.
· Shares of private corporations cannot be freely transferred to the public, unlike those of public companies. Because of this, private enterprises are never listed on stock markets.
· “Private Limited”: The terms “Private Limited” or “Pvt. Ltd.” must appear in the name of any private company.
· Privileges and exemptions: The legislation has allowed private corporations many exemptions that are not available to public companies since they do not allow shareholders to freely transfer their shares and involve a limited amount of member interest.
Creation of Private Company
A private company can be formed with a minimum of two members and a maximum of 200 by submitting an application to the Registrar of Companies, together with a subscribed copy of their Memorandum of Association and other necessary papers, after paying the applicable fees.
The Memorandum must contain information on the company’s name (which should include the words “Private Limited”), its registered office address, its goals and objectives, and the degree of its members’ liabilities. Additionally, it must list the Memorandum’s subscribers’ information.
In addition, the Companies Act has established additional compliance standards, including those pertaining to private company names, their articles of association, member information, transferability of shares, and other matters.
Advantages of registering a private limited company in India?
Following are the merits of private limited companies in India:
1. Limited risk to personal assets
In a private limited company, the liability of the shareholders is constrained. This means that as a shareholder, you will only be responsible for covering the company’s debt to the degree of your own contribution. Since the shareholders are not personally liable, they are not required to use their own assets to cover the company’s liabilities.
2. Separate Legal Entity
A PLC is a different legal entity from you. As a result, the Company is in charge of overseeing its assets, liabilities, debtors, and creditors. You won’t be held accountable for the business’ losses. Therefore, the creditors cannot take legal action against you to recoup the debt.
3. Raising Capital
Although creating a PLC has compliance obligations, businesses choose it since it enables them to expand and obtain capital through stock while also limiting their legal risk.
4. Credibility
Under the 2013 Companies Act, businesses in India must be registered with the Registrar of Companies (ROC). Through the portal maintained by the Ministry of Corporate Affairs (MCA), anyone can view the company’s details. Additionally, information about each director is given when the firm is being formed. Therefore, a PLC corporate structure is more dependable.
5. Ongoing Existence
Until it is formally dissolved, a business has “perpetual succession,” or ongoing existence. A company’s continued existence is unaffected by the death or termination of any member because it is a separate legal entity from its members.
Limitations of Private Companies
Private limited companies are constrained in their operation by the following factors:
· Securities of private companies are not freely transferable;
· It is very difficult for private companies to access outside financial assistance;
· Securities of a private company are not listed on stock exchanges, so a shareholder/security holder cannot know the real value of his investment in a private company;
· The general public has little faith in a private company because its affairs are unknown and it is not subject to striation;
Essentials for registration of a private limited company
The following are the requisites to register a private limited company in India:
1. Unique name of company
The proposed company name must be distinct and cannot be the same as or similar to the name of an already existing company, LLP, or registered trademark.
2. Minimum two persons
A Private Limited Company can be registered by a minimum of two people, who will serve as the company’s shareholders and directors, and at least one of them must be an Indian resident.
3. Capital requirements
To register a Private Limited Company, there is no minimum Paid-up capital required. Investments might be made based on business needs.
4. Major objects of the company
In order to define the company’s business operations, the major objects of the company must be clearly stated before incorporation of the corporation.
Procedure to Incorporate Private Limited Company
The following procedure is required to be complied with by anyone, seeking to incorporate a private limited company in India:
1. Filing of Name Reservation Application
A Private Limited Company name reservation application must be submitted in RUN Form and include a fee of Rs. 1000. Maximum of two names may be applied in the RUN Form. If the name(s) applied are distinct and are not identical to or similar to a name already used by an existing company, limited liability partnership, or trademark, MCA shall reserve the name(s) for 20 days; otherwise, the RUN form filed must be submitted again, and we may apply up to two additional names by submitting the RUN form and the previously paid government fee of Rs. 1000.
However, one name can be submitted directly in SPICe-32 form. This option should only be used if the applicant is certain that the name being filed for is original and not similar to or identical with an existing company, limited liability partnership, or trademark.
2. Obtaining Digital Signature Certificates (DSC)
The next step is to obtain DSCs for each of the proposed first directors and subscribers after the proposed company’s name has been approved.
3. Preparation of establishment Documents
Documents are prepared for the establishment of a Private Limited Company based on KYC documents and various information from proposed initial directors and subscribers.
4. Filing of Various E-Forms for Private Limited Company Incorporation
The E-forms listed below are filed with MCA for Private Limited Company Incorporation:
SPICE FORM 32: The following information and data must be filled out in SPICE Form 32:
· Name of the proposed Business;
· Complete mailing and registered office addresses;
· the prospective company’s email address, phone number, and fax number, if applicable;
· the company’s authorised and subscribed capital;
· Basic details of subscribers and First Directors such as their Name, Father`s Name, Date of Birth, Pan Card Number/ Aadhar Card Number/DL/Passport Number, Nationality, Occupation, Place of Birth, Residential Status, E-mail ID, Telephone Number, Present Address, Permanent Address, Duration of Stay at present address, Number of Shares Subscribed and designation and category of First Directors.
· information particular to PAN, including Area Code, AO Type, Range Code, AO Number, and others, for the assignment of a company’s PAN Card Number;
· information particular to TAN, such as the Company’s TAN’s Area Code, AO Type, Range Code, and AO Number;
· The Company’s sources of income include profits from its trade and profession, capital gains, and rental income from real estate, among others;
· A statement from a practising professional attesting to the form’s compliance with all incorporation-related standards set forth in the Companies Act of 2013 and its implementing rules.
In certain cases, forms INC-33, INC-34, 35 Agile pro are also required to be filed.
5. Issuance of Certificate of Incorporation
The Registrar must examine the submitted forms and their attachments to ensure that they are accurate and comply with the Companies Act of 2013 and its implementing rules regarding the incorporation of companies. If they are, the Registrar will issue the Certificate of Incorporation.
The Bottom Line
Thus, after going through the arduous process of incorporation under the Companies Act,2013, the business can start operating as soon as the Certificate of Incorporation is obtained, marking the end of the incorporation process.
A private company can operate as a separate entity and can not raise capital from the market.The registrar of companies issues this certificate of incorporation. For more details, connect with our experts at StartupFino.
