What is a Private Limited Company?

What is a Limited Liability Partnership?

A Private Limited company is simply a company which is limited by its shares and is incorporated under the Companies Act, 2013. The minimum paid up capital is 1 lac with an article that limits the transfer of its shares. The group of members which owns it is known as shareholders. It is beneficial for startups and businesses having scope for higher growth and is known for its comfortable business structure.

A Private Limited Company is governed by the Ministry of Corporate Affairs, widely known as MCA. Its definition is provided under the Section 2(68) of the Act which defines it as:

A Company having a minimum paid-up share capital as may be prescribed, and which by its articles,—

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred;

(iii) prohibits any invitation to the public to subscribe for any securities of the company.

Features:

Members: To start a Private Limited Company, a minimum of 2 members are required which can be extended to a maximum of 200 members.

Perpetual Succession: Death, insolvency or the bankruptcy of any of its members does not affect the existence of the company which makes it suitable for perpetual succession.

Index of members: A Private Limited Company is free from maintaining the index of its members.

Directors: With a minimum of two and a maximum of two hundred directors, the company may carry out its operations.

Paid up capital: As mentioned above the paid up capital to start a private limited company is 1 lakh or such higher amount which may be prescribed from time to time.

Name: It’s compulsory for the private companies to use the word private limited after its name.

Examples of Private Limited Company:

Generally all venture capital-funded companies are Private Limited Companies nowadays for instance: Amazon, Snapdeal, Ola, BookMyShow, Pepsi India and Jabong. 

When should I opt for a Private Limited Company?

A Private Limited Company is considered to be a common concept for a private business entity. According to statistics, almost 93% of the companies in India are incorporated as Private Limited Companies. There must, therefore, be certain advantages when it comes to choosing a Private Limited Company over other kinds of companies. Following are some such advantages:

  • Separate Legal Entity: It provides a separate legal entity from its members which essentially means that the company can get involved in contracts and legal proceedings in its own name. It also makes sure that the company’s status is unaffected in case of any change in members and management.       
  • Managerial Board: The Board of Directors provides benefits to the members interested in investing.                     
  • Funding capacity: The Private Limited Company provides various options of funding in the form of private equity, ESOP and more. It can also accept deposits from the public and is therefore mostly preferred by venture capitalists, angel investors and other external funding agencies.                   
  • Free and easy transfer of shares: It provides an easy transfer of shares as compared to an OPC,a sole proprietorship or a partnership.

Here’s hoping you now have some perspective over choosing the Private Ltd Structure for your business! Team Delfyle wishes you the very best of luck for your amazing journey ahead. In case of any further queries, feel free to get in touch with us at info@delfyle.com for a chat, absolutely free of cost!

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