Under the Company Act of 2013 there are various types of entities that have been given, out of which one is Pvt Ltd Company. This company is the most favorite of the entrepreneurs. Most people choose this entity for their businesses in the present time. This can happen because of two reasons, first it’s requirements are very less and second it can be formed easily and comes up with various benefits. If you are an entrepreneur who doesn’t register your entity till now, kindly read this write-up till the end. It will help you out ro figure out whether you should opt for Pvt Ltd Company or not. It is really important to know about every aspect of an entity before choosing it for your business. Ending up choosing the wrong entity may put an extra burden on you which is not if you choose the right entity.
Definition of Private Limited Company
A company which is formed with minimum 2 directors which can go up to 200 directors through the website of MCA, that is Ministry of Corporate Affairs by filing an application for the registration before the registrar of companies is called Private Limited Company. These companies are the most preferred among entrepreneurs these days. This is because of the various benefits it offered to the owner of the business. Such entities can be formed with a minimum Rs. 1 Lakh of paid up capital.
Types of Pvt Ltd Company
Private Limited Companies are of three types which has been given below:
Companies Limited by Shares
In Private Limited Companies which are limited by shares the liability of the shareholders of the company is just limited to the extent, they have shares in the company. A shareholder in these companies cannot be liable for more than the amount of shares it has purchased in the Pvt Ltd Company. Here shareholders are not liable for the personal debt of the company.
Companies Limited by Guarantee
In the Private Limited Companies which are limited by the guarantee shareholders are liable to pay only that amount of the money for which they have taken guarantee. This amount has been mentioned in the Memorandum of Association of the company. And the shareholder is only liable for that amount which has been mentioned in the Memorandum of Association of the Pvt Ltd Company.
Unlimited Companies
Under the three categories of Pvt Ltd Company, unlimited company also falls. In such a type of Private Limited Companies shareholders liability is not limited. In such entities shareholders are also liable for the personal debt of the companies. Although there is no limited liability in this category shareholders cannot be sued individually as it offers separate legal identity.
Advantages of Private Limited Company Registration
Some of the key benefits or advantages of registering a Pvt Ltd Company are given below:
Easy Registration Process
Since the registration process is entirely online, one can do it from any location that is convenient for them. Owners of businesses do not have to go from vendor to vendor to finish the process. They can even choose to employ a professional that can handle their task with ease. You’ll be able to focus your time and effort elsewhere by doing this. It is a procedure that saves time. Therefore, you ought to choose the same.
Increases Credibility and Reliability
Earning reputation and reliability in the market is crucial for a company’s success in the competitive environment where new enterprises are always popping up. This will assist in both the firm establishment of the business and profit-making. Businesses that are trustworthy and dependable are doing quite well in the modern world. Therefore, in order to obtain both of them, one must create a company online.
Increases Trustworthiness
Due to their incorporation under the government platform following appropriate verification, these entities are regarded as trustworthy by clients. Because buyers may examine every detail about these enterprises online on the Ministry of Corporate Affairs portal, these entities draw customers to themselves. Because this platform is run by the government, it inspires greater confidence.
Miscellaneous Benefits of Pvt Ltd Company
These online-registered entities offer several advantages or benefits. Below are a few of them:
generates kindness
- Perpetual succession
- Legal individual
- Distinct liability
- Different from the participants
- Minimal responsibility
- Authenticity
- Tax exempt status
- Dependability
- Transparency
Investors Got Attracts
Since these businesses registered online, MCA has access to their data. Without even notifying the company, anyone can access the publicly available information about it. They are transparent as a result, which is one quality that draws investors to them. The government itself then supervises them through a variety of compliances. As a result, there is no pursuit of fraudsters. As a result, investors favor funding these kinds of organizations.
Disadvantages of Private Limited Company
Some of the key disadvantages of the Pvt Ltd Company are mentioned below:
Complicated Incorporation Formalities
A private limited company is a business entity that was established in accordance with the correct legal procedures. There are several steps involved in a law’s due process. Your application might be denied or a request for clarification made even if you omit a single step. It is difficult for a layperson to finish this complex process. A specialist is needed to finish it. It becomes quite complicated for business owners to organize a private limited company as a result of all of this.
High Incorporation Cost
Setting up a private limited company can be a bit complex, and it usually requires professional assistance, which comes at a cost. You’ll need to prepare various documents like DSC, DIN, MOA, AOA, each with its associated fees. When submitting your application, you’ll also have to pay registration fees, which can vary from state to state. This process can be somewhat expensive, so it’s advisable to do thorough research before starting a private limited company.
Complicated Compliances
Private limited companies come with complex and costly compliance requirements. Many people assume it operates like a partnership or proprietorship, but that’s not the case. Private limited companies have both pre and post-incorporation compliances that must be adhered to in order to avoid hefty penalties. Each compliance form incurs its own government fees, and some common ones include INC-20, MGT-7, ADT-1, AOC-4. It’s crucial to be aware of and meet these requirements to safeguard your business.
No Citizenship Right
Although a Pvt Ltd Company is a juristic or legal entity, it doesn’t have the right to get citizenship of India. This means it can’t become a citizen of India, as established in a notable Supreme Court case, State Trading Corporation of India Ltd v/s. CTO. While companies have legal personhood and can seek certain fundamental rights, they can’t claim rights exclusively reserved for Indian citizens.
Subsidiaries Companies
Subsidiary incorporation is among the worst things about being a private limited company. It is not permitted for a private limited company to establish a subsidiary and own 100% of the shares in that firm. Because it will be seen to have been made with malice according to the law if the holding company possesses complete ownership of the shares of its subsidiary firm. And in such circumstances, the corporate curtain will be raised and the appropriate authorities will conduct a thorough inspection.
Lifting Up the Corporate Veil
When a company’s platform is used for fraud or wrongdoing, the courts can uncover the truth by lifting the corporate veil. If a company’s primary purpose is fraud or improper conduct, it won’t be allowed to be incorporated. An example of this is the famous case of Gilford Motor Company V/S. Horne, where it was found that the company was a mere front to let the defendant break a contract with the plaintiff because he controlled the company. As a result, an injunction was imposed on both the defendant and the company.
Process of Registration of Pvt Ltd Company
For the registration of the Pvt Ltd Company follow the process given below:
- Choose a unique name for your company
- Apply for the name approval of the company
- Once the name is approved fill the application form for registration
- Submit the form after paying the requisite fees for the registration
- Registrar of the companies will examine the application
- If everything is up to the mark, registrar of companies will issue the incorporation certificate
Documents Required for the registration of Private Limited Company
Some of the key documents which are required in order to complete the procedure for the registration of Pvt Ltd Company are:
- Documents related to the key person of the company like director and shareholders
- Business Address proof of the company
- MOA and AOA of the company
- DSC and DIN of the company
- Bank account details of the directors of the company
- Recent passport size photo of the directors of the company
Conclusion
A Pvt Ltd Company, governed by the Companies Act of 2013, is a business entity with limited liability for its shareholders, offering advantages like online registration, credibility in the market, and ease of attracting investors. However, the process involves complex formalities and associated costs, and the company cannot obtain citizenship or establish subsidiaries easily. It also entails strict compliance requirements and can have its corporate veil lifted in cases of fraud or wrongdoing, requiring careful consideration by entrepreneurs before choosing this business structure in India.
