What is a Private Limited Company India? – Complete Guide

A private limited company is an exclusive business structure designed for small enterprises. This particular entity ensures that owners are only liable for their invested shares, caps the number of shareholders at 200, and prohibits the public trading of shares.

Now, let’s take a closer look into the topic with our comprehensive article exploring the many intricacies and advantages of private limited companies.

What is a Private Limited Company?

A private limited company is a privately owned business entity held exclusively by private stakeholders. Within this structure, the liability arrangement mirrors that of a limited partnership, where a shareholder’s liability is confined to the extent of their shareholdings.

Amidst the flourishing startup ecosystem nationwide and a growing entrepreneurial spirit, it becomes imperative to comprehend various business registration options, such as sole proprietorship, limited liability company, and private limited company.

Legally defined by Section 2 (68) of the Companies Act 2013, a private company is characterised by a minimum prescribed paid-up share capital. Its articles impose certain restrictions, including the limitation of the right to transfer shares, a cap on the number of members (not exceeding two hundred, except in the case of a One Person Company), and a prohibition on public invitations for subscription to the company’s securities.

Private companies enjoy distinct advantages over their public counterparts, particularly in terms of making long-term strategic investments, maintaining confidentiality around shared values and financial metrics, and experiencing greater freedom and flexibility in their operations. Join us as we explore the diverse dimensions of private limited companies in detail.

Important Characteristics of a Private Limited Company

Understanding the characteristics of a private limited company is crucial for anyone considering such a business structure:

• Membership: To establish a private limited company, a minimum of two shareholders is necessary. However, due to its designation as a small entity, there is a maximum cap on the number of members, set at 200. Additionally, the company must have at least two directors to oversee its operations.
• Limited Liability Structure: In a private limited company, the liability of each member or shareholder is limited. This means that in the event of losses, shareholders are only responsible for the repayment up to the value of their shares. Importantly, the personal and individual assets of shareholders remain safeguarded and are not at risk.
• Separate Legal Entity: A private limited company is recognised as a distinct legal entity with perpetual succession. Even in the face of unfortunate events such as the demise of all members or insolvency, the company persists in the eyes of the law. Its existence is not contingent on the lives of its shareholders, and it continues unless formally dissolved through a resolution.
• Minimum Paid-up Capital: To operate, a private limited company must maintain a minimum paid-up capital of Rs. 1 lakh. It’s worth noting that this amount could be higher, as dictated by regulations set forth by the Ministry of Corporate Affairs (MCA) from time to time.

Requirements of a Private Limited Company

Starting a Private Limited Company involves complying with specific requirements. Here are the key prerequisites for incorporation:

Members and Directors

• A private limited company must have a minimum of two and a maximum of 200 members, as per the Companies Act 2013.
• Directors should meet specific conditions:
• Each director must have a Director Identification Number (DIN) issued by the Ministry of Corporate Affairs.
• At least one director must be a resident of India, having stayed in the country for at least 182 days in the previous calendar year.

Name of the Company

• The process of choosing a name involves considering three aspects:
  • Main name
  • Activities to be carried out
  • Inclusion of ‘Private Limited Company’ at the end.
• During registration, companies must propose 5-6 names for approval to the Registrar of Company (ROC). These names should not closely resemble existing company names.

Registered Office Address

• After registration, the company must provide the permanent address of its registered office to the registrar. This address is where the company’s primary affairs are conducted, and all relevant documents are stored.

Obtaining Other Documents

• For electronic document submission, companies must obtain a digital signature certificate to verify document authenticity.
• In companies employing professionals (such as secretaries, chartered accountants, cost accountants), certifications from these professionals are necessary for various activities.

Advantages of a Private Limited Company

Registering a Private Limited Company in India offers several advantages that contribute to its popularity among entrepreneurs. Here are some key benefits:

• Limited Risk to Personal Assets: Shareholders in a private limited company enjoy limited liability, meaning their responsibility is restricted to the contribution made to the company. The shareholders’ personal assets are not at risk, and they are not personally liable for the company’s debts.
• Legal Entity Status: A private limited company is recognised as a distinct legal entity, separate from its directors and shareholders. The company is solely responsible for managing its assets, liabilities, debtors, and creditors. Shareholders are shielded from direct responsibility for the company’s losses, preventing creditors from pursuing the personal assets of directors or shareholders.
• Raising Capital: Despite compliance requirements, entrepreneurs prefer registering a private limited company for its ability to raise funds through equity. This structure facilitates business expansion while limiting the liability of the shareholders.
• Trustworthiness: Private limited companies in India undergo registration with the Registrar of Companies (ROC) under the Companies Act of 2013. The company’s details are accessible through the Ministry of Corporate Affairs (MCA) portal, including information about all directors. This transparency enhances trust in the business structure.
• Continued Existence: A private limited company enjoys ‘perpetual succession,’ ensuring uninterrupted existence until legally dissolved. As a separate legal entity, the company remains unaffected by the death or departure of any member, ensuring continuous operation regardless of changes in membership.

The advantages outlined make private limited company registration an attractive option for entrepreneurs seeking a business structure that balances risk mitigation, legal protection, fundraising capabilities, trustworthiness, and long-term sustainability.

Documents Required for a Private Limited Company

The documentation process for establishing a Private Limited Company involves providing various proofs and agreements.

Here is a list of documents required:

ID Proof

• PAN card for Indian directors
• Passport for foreign directors

Address Proofs (Choose one)

• Ration card
• Aadhar card
• Driver’s license
• Voter ID

Residence Proofs (Choose one)

• Bank statement
• Electricity bill for the premises

Additional Documents

• Notarized rental agreement
• NOC (No Objection Certificate) from the property owner if the office premises are rented
• Copy of the sale deed or property deed if the office premises are owned

These documents are crucial for verifying the identity, address, and residence of the directors, as well as for confirming the authenticity of the office premises.

Registering a Private Limited Company

We understand that the registration process can be intricate, involving various compliances. Fear not, as our expert services are here to guide you through every step of the private limited company registration.

• Initiate the process by obtaining a Digital Signature Certificate (DSC), a crucial requirement for filing forms during company formation. Our expert assistance ensures a seamless application for this certificate.
• For those aspiring to be directors, securing a Director Identification Number (DIN) is essential. We provide support in obtaining DIN through the appropriate channels, making the process hassle-free.
• Determining an appropriate and unique name for your company is vital. Utilise expertise to navigate the intricacies of name availability, ensuring compliance with regulations.
• The core of the registration process lies in filing Form SPICe+ INC-32. Our experts guide you through this critical step, streamlining the incorporation of your private limited company.
• Simplify the filing of the electronic Memorandum of Association (e-MoA) and electronic Articles of Association (e-AoA) with our expert assistance. These documents are pivotal in defining your company’s charter and internal regulations.
• As part of the comprehensive service, we facilitate the application for your company’s PAN and TAN. These crucial identifications are seamlessly generated after the successful submission of the SPICe+ form.

Note: The RUN Web service, previously used for name availability, is now reserved for changing the name of an existing company, effective from 23 February 2020.

Here is a detailed process guide for you to register a Private Limited Company:

Step 1: Obtain DSC (Digital Signature)

In the initial phase of company formation, acquiring a Digital Signature is imperative. This electronic signature is crucial as the registration process is entirely online, and digital signatures are mandatory for all subscribers and witnesses involved in drafting the Memorandum of Association (MOA) and Articles of Association (AOA).

Here’s how to go about it:

• Government Recognized Certifying Authorities: Obtain your Digital Signature Certificate (DSC) from certifying authorities recognised by the government. A list of such authorities is available here
• Certifying Authority Costs: The cost of obtaining a DSC varies based on the certifying authority chosen. It is recommended to check with the specific authority for their pricing details.
• Class 3 Category DSC: Ensure that you obtain a DSC falling under the Class 3 category. This category is crucial for the security and authenticity of the digital signature.

By obtaining a Class 3 Digital Signature Certificate from a recognised authority, you set the foundation for a secure and compliant online registration process for your company.

Step 2: Apply for DIN (Director Identification Number)

The Director Identification Number (DIN) is a unique identification number essential for anyone aspiring to become a director in a company. One DIN is sufficient to hold directorship in any number of companies. Here’s how you can obtain DIN:

Option 1: File Form DIR-3

• This option is suitable for individuals seeking to become directors in existing companies.
• Form DIR-3 requires basic details of the proposed director, along with identity proof such as PAN, Aadhaar Card, etc., and address proof.
• As of February 23, 2020, for new companies, DIN can be applied within the SPICe+ form for up to three directors.

Option 2: Filing through SPICe+ (INC 32)

• When filing through SPICe+ (INC 32), DINs are automatically issued to proposed directors who do not already have a DIN.
• This process allows a maximum of three directors to apply for DIN simultaneously.
• If the intention is to incorporate a company with more than three directors and not all of them have DIN, the applicant must initially incorporate the company with three directors. Additional directors can be appointed later on after incorporation.

Step 3: Name Approval

Obtaining approval for the company’s name is a crucial step in the incorporation process. The Ministry of Corporate Affairs (MCA) has introduced two options for name approval within the SPICe+ (INC 32) form:

Option 1: Reserving the Name via Part-A of SPICe+ Form

• Commencing from February 23, 2020, the MCA has implemented the SPICe+ web service, simplifying procedures for both new and existing companies.
• Part-A of the SPICe+ form allows for ‘name reservation’ with the submission of two proposed names and one re-submission (RSUB) option for reserving unique names for companies.
• In case of name rejection due to similarity with a registered company, LLP, trademark, or non-compliance with the Companies (Incorporation Rules) 2014, the applicant needs to re-file another SPICe+ form with the prescribed fee.
• Upon name approval, it remains reserved for 20 days, during which the company must proceed with incorporation by filing Part-B of the SPICe+ form.
• Importantly, Digital Signature Certificates (DSC) and Director Identification Number (DIN) are not required for filing Part-A for name reservation. Only an MCA Account is mandatory.

Option 2: Name Approval by Filing Part-A and Part-B of SPICe+ Form Together

• Applicants can choose to apply for the proposed name concurrently with the incorporation application by filing both Part-A and Part-B of the SPICe+ form together.
• Similar to the previous SPICe form, SPICe+ allows a combined application for incorporation and name approval. Only one name can be applied to this form.
• In case of name rejection, a second chance is provided for re-filing the same SPICe+ form without additional charges. This grants two opportunities to submit the same form without incurring extra costs (Rs. 1000/- each time).
• The resubmission of the SPICe+ form, whether for standalone name approval or incorporation, can be done using the ‘name applied for’ or ‘application number’ link available on the user’s dashboard.
• If the name approval is unsuccessful in the second attempt, applicants can file the SPICe form again from the beginning, which proves to be a more cost-effective approach.
• The entire process, including name approval and incorporation, typically takes around 2-3 days.

Selecting the most suitable option aligns with the company’s requirements and contributes to a streamlined and efficient process for obtaining name approval.

Step 4: Form SPICe+ (INC-32) 

The Ministry of Corporate Affairs (MCA) has revolutionised the company registration process by introducing Form SPICe+ for new companies, effective from February 23, 2020.

Incorporation under Part B of the SPICe+ form is a web-based procedure designed to simplify and expedite the incorporation of companies.

Upon obtaining name approval, applicants can access the link to the approved name on their dashboard and proceed to complete the incorporation process through Part B of the SPICe+ form. This online incorporation serves various purposes with the convenience of a single application, including:

• Application for allotment of DIN (Director Identification Number)
• Reservation of company name
• Incorporation of a new company
• Application for PAN and TAN (mandatory)
• Application for EPFO registration (mandatory)
• Application for ESIC registration (mandatory)
• Application for Professional tax registration (only for Maharashtra)
• Application for opening a bank account for the company (mandatory)
• Allotment of GSTN (Goods and Service Tax registration number) if applied for (optional)

The SPICe+ form facilitates web-based data entry and real-time validation, ensuring a seamless and rapid incorporation process. The details entered in both Part-A and Part-B of SPICe+ are automatically filled in the linked forms, including AGILE-PRO, eAoA, eMoA, URC1, and INC-9 (as applicable).

Once the forms are filled, they need to be downloaded in PDF format, digitally signed, and subsequently submitted for incorporation purposes. After completing the SPICe+ form, users must download the form in PDF format and affix the Digital Signature Certificate (DSC) to sign the form digitally.

A crucial aspect of filing Form INC-32 is the requirement for the digital signature of a professional, who can be a Chartered Accountant, Company Secretary, Cost Accountant, or advocate. This professional is responsible for certifying the accuracy of all the information provided in the form.

Prior to May 2015, the registration process involved several distinct documents, such as DIR–3 for acquiring the DIN, INC-1 for obtaining a name, INC–7 for registering the company with the Memorandum and Articles of Association, INC–22 for the registered office, and finally, Form DIR-12 for the directors. However, with the advent of SPICe+, these forms have been amalgamated into a unified process, making the SPICe+ form the sole route for company incorporation. Additionally, for companies with an authorised capital of up to 10 lakhs, there are no Registrar of Companies (ROC) fees for incorporation.

Documents required for filing SPICe+ (INC-32)

The documents differ for the registration of a private limited company, depending on the nationality of the directors and subscribers. Here’s a breakdown of the required documents for Indian and foreign nationals:

A. Where the director and subscriber are Indian Nationals

• Affidavit: All subscribers of the company must provide an Affidavit on a Stamp Paper stating their willingness to become shareholders of the company.
• Proof of Office Address: Provide a Rental Agreement or Ownership Deed, such as a Sale Deed, for the registered office address.
• Utility Bills: Copies of utility bills (electricity, water, or gas bills) not older than two months must be submitted.
• Approval Copy: If the proposed name of the company requires approval from the central government, provide a copy of the approval.
• Trademark Information: If the proposed name is based on a registered trademark or is the subject of a pending application under the Trade Marks Act, attach the trademark registration certificate or trademark application copy.
• NOC from Property Owner: If the registered office is on a rented/leased property, include a No Objection Certificate (NOC) from the property owner.
• Proof of Identity and Address: If subscribers or directors do not have a Director Identification Number (DIN), attach proof of identity and address for the subscribers.

B. Where the director/subscriber is a foreign national

• Passport: A copy of the passport of the foreign national.
• Address Proof: Provide address proof such as a driving license, residence card, bank statement, or any government-issued identification containing the address.

It’s important to note that these documents are crucial for the successful filing of SPICe+ (INC-32) and the subsequent registration of the private limited company. Ensure that all documents are accurate, up-to-date, and comply with the regulatory requirements.

Cost of Registering a Private Limited Company

The cost involved in registering a Private Limited (Pvt Ltd) Company includes various components. Please note that the prices mentioned are indicative and may vary. Here’s a breakdown of the costs:

Please note that these costs are inclusive of various fees such as DSC, DIN, professional fees, stamp duty, notary fees, and government fees for services like RUN, PAN, and TAN. Additionally, GST is applicable at the rate of 18%. The total plan amount includes all these fees.

It’s advisable to check with the specific service provider or consulting firm to get the most accurate and up-to-date information on the costs associated with Private Limited Company registration, as prices may vary and are subject to change.

Time Required for Registering a Pvt. Ltd. Company

The time required to register a Private Limited company can vary based on several factors, including the efficiency of the registration process and the timely submission of required documents. As of the information provided:

• Approval of DIN (Director Identification Number): The process of obtaining DIN for directors may take some time. This is typically initiated during the registration process.
• Name Approval: The Ministry of Corporate Affairs (MCA) introduced the SPICe+ web service for the incorporation of a company. The name approval is a part of this process. The approval of the name may take a few days.
• Incorporation: After the name is approved, the applicant can proceed with the incorporation process using the SPICe+ form. This includes the application for DIN, company name reservation, incorporation of the new company, application for PAN and TAN, and other mandatory registrations.

The provided information suggests that the entire process, including approval of DIN, name, and incorporation, takes around 10 working days. It’s important to note that the efficiency of the process may vary, and factors such as the accuracy and completeness of the submitted documents, government processing times, and other administrative factors can influence the overall timeline.

FAQs about Private Limited Companies