There are various business structures such as Sole Proprietorship, One Person Company, General Partnership, Limited Liability Partnership, Private Limited Company, and Public Limited Company, that an entrepreneur can choose to start a business. Choosing an ideal legal structure would be one of the first decisions an entrepreneur would make. But how to decide which business entity is ideal for your business? 

In this article, we will discuss Private Limited Company.

A Private Limited Company is a business entity that is privately held for small to medium businesses. The liability of the members of a Private Limited Company is limited to the number of shares respectively held by them. Shares of Private Limited Company cannot be publicly traded. 

Liability

Members or shareholders of a Private Limited Company have limited liability. In case of loss, the personal and individual assets of the shareholders are not at risk. 

Capital 

A Private Limited Company does not have any minimum capital requirement. 

Separate Legal Entity

A Private Limited Company has a separate legal entity, distinct from its owners. It has perpetual succession i.e. even if all the members die, or the company becomes insolvent or bankrupt, the company still exists in the eyes of the law. The life of the company will be perpetual and not affected by the lives of its shareholders or members unless dissolved by way of resolution.

Legal Formalities

The company is governed by the provisions of the Companies Act, 2013. Depending upon the nature of the business, a company may attract other provisions of laws and have to comply with them. 

Advantages and Disadvantages of Private Limited Company

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Advantages

1. Limited Liability

2. Investor-Friendly

3. Separate Legal Entity

4. Flexible Shareholding 

5. Maintains Transparency

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Disadvantages

1. High Level of Financial & Legal Compliance

2. Lack of Confidentiality

3. High Cost of Formation & Maintenance

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Eligibility to Form Private Limited Company

• Number of Directors: A Minimum of 2 and a maximum of 15.         
• Number of Shareholders: A Minimum of 2 and a maximum of 200. However, one person can act as both director and shareholder.
• Citizenship: A private company can have a foreign director. However, at least one of the directors must hold Indian Citizenship.
• No Minimum Capital Requirement. 

Suitability of Private Limited Company

Private Limited Company form of business entity is suitable where: 

1. the volume of business is quite large
2. the area of operation is widespread
3. the risk involved is heavy
4. there is a need for huge financial resources and manpower
5. there is a need for professional management and flexibility of operations

Documents Required for Private Limited Company

Private Limited Company form of the business entity requires the following documents:

1. ID proof: PAN card and passport of Indian and foreign directors, respectively
2. Address proof: Ration card or Aadhar card or Driver’s License or Voter ID
3. Residence proof: Bank statement or Electricity bill of the premise
4. Notarized rental agreement
5. NOC from the property owner

A copy of the sale deed or property deed (for an owned property)

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Choosing the ideal legal entity for your business should be done in consultation with a legal professional. Your Virtual Legal Counsel can guide you to set up the most preferred legal entity for your business. Your Virtual Legal Counsel will work with you as a partner in incorporating and protecting your business. Schedule a meeting with YVLC to discuss the ideal structure for your business to set up in India.