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Importance of a Private limited company

Published On: Nov. 26, 2017 By:
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Importance of a Private limited company

What do we mean by a Private Limited Company?

The “importance of Private Limited Company” in India can be shown in numerous ways. It is one of the most rampant types of business structure found in India. This corporate legal body is governed by the Companies Act, 2013 and the Companies Incorporation Rules, 2014. The government made some crucial changes to Companies Incorporation Rules, 2014.A private limited company is a business entity held in private. This unit of company puts a restraint on owner’s liability to his shares. Moreover, it allows only 50 shareholders and restraints these shareholders from trading their shares publicly.

Features of a Private Limited Company

There are a few exclusive features of a private limited company. These are:-

  1. It provides the shareholders with limited liability.
  2. Shareholders may raise equity funds from this liability.
  3. Due to its unique feature, its existence and status as a separate legal unit, minor and intermediate sized businesses bodies decide on Private Limited Company.

Section 2(68) Private Company classified Private Limited Company as:

  1. A company with a minimum paid-up share capital or in some cases higher capital than the capital granted.
  2. The segment constrains the capacity of its members to 200. However, these members cannot be the employees of the company. Moreover, ex-employees of the company cannot be members.
  3. This section does not allow the public to subscribe for any shares of the company.
  4. Furthermore, the section disallows neither any invitation or acceptance of deposits from directors or their relatives. Only members of the company are allowed to do so.

Documents Required for Private Limited Company Registration

All the documents that are to be submitted by Directors and Shareholders who are a resident in India include:

  1. Scanned PAN Card copy.
  2. Scanned Voter’s ID, Passport or Driver’s License photocopy.
  3. All updated bank statement and/or Mobile Bill or Electricity Bill and other mentioned documents with the photocopy.
  4. A photograph that should be passport-sized and scanned.
  5. A blank document containing signature solely of the directors. In addition, either one of the directors is required to self-attest the documents as mentioned above.

Uncomplicated steps to register for Private Limited Company

  1. The first step is to submit an application for Digital Signatures and Directors Identification Number.
  2. The second task would be to select the type of the company.
  3. Next, a name has to be selected for the company.
  4. Subsequently, a summary Memorandum of Association and Articles of Association needs to be prepared.
  5. Thereafter, various documents after stamping, digitally signing, needs to be e-filed with the Registrar.
  6. After payment of fees, Certificate of Incorporation needs to be acquired.
  7. In case of public companies, the statement in lieu of Prospectus and e-Form 19/20 needs to be filed.
  8. Finally, Certificate of Commencement of business is acquired.

Procedure to follow while registering for Private Limited Company

  1. In order to register for a private limited company, it is necessary to have a minimum of two shareholders along with two directors. An individual can be a director as well as a shareholder.
  2. Digital Signature of any of the directors should be present.
  3. Shareholders are required to register for a Private Limited Company.
  4. A minimum amount Rs. 1,00,000 should be the authorized share capital.
  5. Digital Signature Certificate or DSC is mandatory for all the Directors.
  6. Similarly, Director Identification Number or DIN is also mandatory for all the Directors.

Advantages of a Private Limited Company

A Private Limited Company offers the following advantages :

  1. It is a completely detached legal body. Under this type of company, the members are not liable to the creditors for debts. It is a separate legal body with no attachment to its members.
  2. The company can continue to exist even after the demise of any of its member. Since the company is a separate legal unit, it enables perpetual succession if such situation ever arises.

Private Limited Company provides meager liability and is lawfully accountable for a limited amount of debts for a company. The accountability involving the members of a company is restrained to the face value of shares in operation. As a result, the members are found liable only for the amount unpaid on their shares.

  1. Moreover, Private Limited Company guarantees an easy management of shares, The Company shares can be transferred by a shareholder to any other individual. On successful signing and filing of a share transfer form, shares can be transferred and can be handed over to the buyer of the shares accompanied by the share certificate.
  2. A Private Limited Company may purchase, discard or utilize a property at its own expense. The company is the sole owner in this case. Furthermore, the shareholders have no claim on the property.
  3. As the company is a self-governing body and legally bound unit, it is possible to use and be used under certain circumstances.
  4. Under this type of company, it is possible to develop a legitimate contract with its members. An individual may operate as a director, an employee or a shareholder, all at once.
  5. This type of limited company allows shareholders to easily upgrade their capital investment. Two hundred members are allowed, to raise their funds. Thus, in case of a private limited company, the exposure is greater. In addition, applying for loans from the bank is also convenient.
  6. Private Limited Company provides with several tax advantages. The company pays tax on taxable earnings which is further relieved from elevated individual income tax charges.

In conclusion, “Importance of private limited company”, can be explained through plenty of examples. It is a prevalent form of business. Private Limited Company provides with a plethora of advantages as well as benefits to various organizations. Since, such a company is administered by The Companies Act, 2013; various other dictatorial measures are followed during its functioning. All the rigorous disclosure norms are abided by the company to avoid complications.

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