Business structures, business goals, and modes of operation determine how to register your company themselves in India under the legal structure. Businesses have their own unique organizational structures and features. This essay will concentrate on the structure of a Private Limited Company. In India, private limited companies are the most common type of commercial entity. More than 90 percent of all enterprises in the country are private limited companies.
Businesses frequently choose private corporations because of their flexibility and minimal responsibility. These topics will be discussed later. Before we get into that, let’s define ‘WHAT IS A PRIVATE LIMITED COMPANY?’
By its articles of association, a company established under section 2(20) of the Companies Act 2013:
- Shares are not transferable
- Limits the number of members, and
- A company that does not invite the public to subscribe for its securities is called a private limited company
Types Of Private Limited Company
Three types of Indian private limited companies exist:
- Company limited by shares – During the life of the company or at the time of its liquidation, the outstanding amounts could be repaid.
- Company limited by guarantee – In a company limited by guarantee, each member is only liable for his or her shares. The guarantee sum can only be recovered if the company is liquidated.
- Companies with unlimited liability – Members of the company have unlimited liability. Private companies with unlimited liability exist only in theory.
Features Of Private Limited Company
- Limited Liability – One of the reasons for choosing a Private Limited structure is that it offers limited liability. As a member, you are only responsible for the shares you own. The members of the organization would not be able to pay off any outstanding debts with their personal assets in case of a financial crisis. It is however possible to reimburse them for their debts by using their shares in the company.
- Separate legal entity – Companies are legally treated as separate legal entities because Private Limited Companies are separate legal entities. In other words, they are responsible for their debts, assets, and liabilities. Unlike public companies, private limited companies can carry out business on their own behalf and can buy and sell properties. Buying and selling property is permitted under the company’s own name. An LLC is a vastly different structure than a sole proprietorship, which is where the owner is also the company.
- Perpetual succession – Under this structure, an unlimited company can continue to exist forever. It is immune from Death, Disability, or Insolvency of any of its members while a Private Limited Company is in operation until it is legally dissolved.
- Number of members – There must be at least two members in a private limited company according to law. There cannot be more than 200 members.
- Directors – Previously, a company that wanted to incorporate had to have at least 1 lakh in paid up capital. That requirement is no longer in effect.
Two directors are required for a private company – A private business must have two directors. The maximum number of directors for a private company is fifteen. A General Meeting and a Special Resolution that requires a majority vote of more than 75% must be passed if the company wishes to increase its director count beyond 15.
- Securities of a Private Limited Company – An unincorporated company can issue securities to its promoters, directors, employees, and relatives. A non-incorporated business cannot sell securities to the general public..
- Transferability of Shares – Members can transfer their shares from one company to another, but they cannot transfer their shares to another company.
- Small Company – A company whose paid-up capital does not exceed * 50 lakhs and whose profits and losses for the financial year immediately preceding are not more than * 2 crores is referred to as a SMALL COMPANY under section 2(85) of the Companies Act (1956).
- Penalty for less than 2 members – If the number of members drops below 2, the remaining members or the company must appoint the new member within six months. According to the law, if the number of members remains below 2 for more than six months, penalties will be imposed.
Privileges of Private Limited Company
- Member Index – Private company is not required to keep a register of its members’ names. A company with more than 50 members is required to keep a register at all times containing members’ names and their respective shares, as provided by the Companies Act 1956.
- Prospectus – Securities and Exchange Commission does not require Private Limited Companies to issue prospectuses. The SEC issues a prospectus that contains information about a company’s operation and investment offerings.
- Eligibility For Different Schemes – Privately held companies are eligible for a number of government programs aimed at facilitating the growth of startups.
- Financing – Investors and venture capital firms are willing to provide funds to limited liability companies.
Conclusive Thoughts
From the government, Private Limited Companies can enjoy multiple benefits. Businesses that plan to raise funds from external sources or want to offer employee stock options are best served by forming a private limited company. It is the ideal option for businesses looking for long-term growth.
There are benefits and limitations to every Business structure. Which Business structure to choose is ultimately driven by your Business objectives.
