Private Limited Company
A Private Limited Company is a voluntary association registered under the Companies Act, 2013 or any other previous company law. A Private Limited Company is the best option if you are planning it bigger. Earlier, required minimum paid-up capital was 1 Lakh for the formation of a Private Limited Company, but as per the 2015 amendment to the Companies Act, 2013, no minimum paid-up capital is required. Now it is more convenient for a businessman to start a private Private Limited Company. It is the most preferable form of company amongst entrepreneurs. Not just incorporation of a private limited company requires the compliance with various laws, but also after its incorporation the compliance work is of utmost importance.
Important factors for registering a Private Limited Company
- Considering the scalability and flexibility for conducting the business.
- Private Limited Companies are the most acceptable form of business constitution.
- You may choose to have ownership and management separate by hiring skilled professionals for growth of the business.
- Liability of members of the Private Limited Companies is limited to the extent of their commitments.
- You can manage your business through the constitution of the company, i.e. Articles of Association of the company.
Benefits of Registering a Private Limited Company
A member is not personally liable for the debt and liabilities of the company. The Liability of a member is only limited to the share subscribed by him at the time of winding up.
A company is a juristic person in the eyes of law. It can acquire, hold, and alienate property in its own name. It is an artificial separate legal entity. It can sue and can be sued in its own name. A company can enter into a contract in its own name through its members. Earlier, a company’s common seal was considered as its signature, but after the 2015 amendment, common seal is not mandatory but optional.
Unlike a partnership, a company does not come to an end even if the members die, and becomes insolvent. It continues to survive unless dissolved by legally or voluntarily.
A PLC can obtain funds by issuing shares, debentures, stock. A company can issue secured as well as unsecured debentures. It can also accept deposits from public. It is easier to get loans from financial institutions.
A company, though being an artificial person, conducts its business through natural person. The affairs of a company are managed by the Directors, Top level managers, MD and the employees of the Company. Therefore, in case of fraud, misrepresentation in documents, the person responsible for it is liable. For instance, a promoter is liable for misrepresentation in the prospectus. It is called lifting of corporate veil. Thus, despite the fact that it is a separate legal entity the person liable for the fraud, misrepresentation, mistake is held liable.
- Now a PLC can advance loan or security/ guarantee to its Directors provided that;
- Such company should not have body corporate as shareholder and;
- It should not have borrowed money from any financial institution or bank or any other body corporate, exceeding twice its paid up capital or 50 cr whichever is less and;
- No repayment default by such Company.
If you are planning for long run business and want to build up huge capital resource, want to conduct business at large-scale, in such case, a small enterprise, an LLP can be easily converted into a PLC. A PLC can also be converted into a Public Limited Company as well and vice versa.
Shareholders are the owners of the company. A shareholder can transfer its share subject to the alteration in AOA.