Private Limited Company: An Overview

A Private Limited Company (PLC) is one of the most common types of legal entity in India. Private Limited Companies are governed by the Companies Act, 2013.

A Private Limited company is a company which is privately held for small businesses. The liability of the members of a Private Limited Company is limited to the amount of shares respectively held by them. Shares of Private Limited Companies cannot be publically traded.

To register a company in India, the following are the minimum requirements:

• 2 Directors – 1 Person should be an Indian National and Indian Resident
• 2 Shareholders – The Directors can be shareholders
• Registered Office in India
• Paid-up capital– It must have a minimum paid-up capital of Rs 1 lakh or a higher amount which may be prescribed from time to time.

100% Foreign Direct Ownership (FDI) is permitted in most sectors in India and there is no restriction on foreign shareholding of a private limited company. Hence, most foreign subsidiaries are established in India as private limited companies.

Advantages of Private Limited Company

1. Limited risk: 

The shareholders of a private limited company have limited liability. This means that as a shareholder you will be liable to pay for the company’s liability only to the extent of the contribution made by you. The shareholders do not have any personal liability and hence need not pay for the company’s liability out of their own assets. 

2. Legal Entity: 

A PLC has a separate legal entity different from you. This means that the Company is responsible for the management of its assets and liabilities, debtors and creditors. You will not be held responsible for the losses of the company. So, the creditors cannot proceed against you to recover the money.

3. Raising Capital:

Even though registering a PLC comes with compliance requirements, it is preferred by entrepreneurs as it helps them raise funds through equity, expand and at the same time limits the liability.

4. Trustworthiness:

Companies in India are registered with the Registrar of companies(ROC) under the Companies Act 2013. Anyone can check the details of the company through the Ministry of Corporate Affairs (MCA) portal. Also, details of all the directors are provided while the formation of the company. Hence a PLC form of business structure is trusted more.

5. Continue Existence: 

A company has ‘perpetual succession’, i.e. continue or uninterrupted existence until it is legally dissolved. A company, being a separate legal person, is unaffected by the death or cessation of any member but continues to be in existence irrespective of the changes in membership.

Private Limited Company Comlainces

Once a company is registered in India, various compliances must be maintained from time to time to avoid penalties and prosecution. The following are some of the compliances a company would be required to complete after company registration:

Auditor Appointment: 

All companies registered in India must appoint a practising and licensed Chartered Accountant registered with the ICAI within 30 days of incorporation.

Director DIN KYC: 

All persons who hold a Director Identification Number (DIN) – which is allocated during the incorporation process must complete DIN KYC each year to validate the phone and email address on record with the Ministry of Corporate Affairs.

Commencement of Business: 

Within 180 days of incorporation, the company must open a Bank Current Account and the shareholders must deposit the subscription amount mentioned in the MOA of the company. Hence, if the company was to be incorporated with a paid-up capital of Rs. 1 lakh, then the shareholders must deposit Rs. 1 lakh in the Company’s bank account and file the bank statement with the MCA  under Form No. INC 20A to obtain a commencement of business certificate.

MCA Annual Filings: 

All companies registered in India must file a copy of the financial statements with the Ministry of Corporate Affairs each financial year. If a company is incorporated between January – March, the company can choose to file the first MCA annual return as a part of the next financial year’s annual filing. MCA annual return consists of Form MGT-7/7A and Form AOC-4. Both these forms must be digitally signed by the Directors and a practising professional.

Income Tax Filing: 

All companies must file an income tax return using Form ITR-6 each financial year. Income tax filing must be done for each financial year before the due date – irrespective of the incorporation date. The income tax return of a company must be digitally signed using one of the Director’s digital signatures.

Documents Required for Incorporation

Proof of Identification of the Directors:-

Indian Nationals:PAN Card

Foreign Nationals:Passport

Address Proof of the Directors:-

Indian Nationals:Passport / Driver’s License / Voter ID / Ration Card / Aadhar ID

Foreign Nationals:Drivers License / Bank Statement / Residence Card

Residency Proof of the Directors:-

Indian Nationals:PAN Card

Foreign Nationals:Passport

If one of the company's shareholders is a company based in India or abroad, the following documents must be submitted:

• Board resolution authorizing investment in the company
• Incorporation Certificate of the Company
• Address proof of the company