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A business entity is called a private limited company when its ownership is private i.e. shares privately held instead of public. Such type of company offers limited liability and legal protection for its shareholders but also imposes certain restrictions on the ownership.

The following are the restrictions imposed by the company over its ownership:

  1. The shareholders are not allowed to sell or transfer their shares without offering the same to the other shareholders for purchase.
  2. The shareholders are also not allowed to offer their shares to the public over a stock exchange
  3. Only a limited number of shareholders are allowed.

The following are the advantages of owning a private limited company:

  • Uninterrupted Existence: The company does not get affected by the death or departure of any member as it is a separate legal entity.
  • Limited Liability: The members are legally responsible only to a limited amount of debts of a company unlike proprietorships and partnerships.
  • Free & Easy transferability of shares: A shareholder of the company can easily transfer the shares to any other person without any legalcomplexities.
  • Dual Relationship: A member or employer of the company can be a shareholder, creditor, and director and also employee of the company at the same time.

Frequently Asked Question

The prerequisites for the incorporation of a private limited company are that:

  • The number of members must be between 2 to 200.
  • There must be at least two directors and two shareholders
  • Each director must have a Directors Identification Number (DIN)
  • PAN card copy of directors/shareholders and Passport copy for NRI subscribers.

Yes, The Company needs to provide address proof for incorporation. But the Ministry of Corporate Affairs (MCA) allows a residential address to be used as the company’s registered address. Thus any address can be provided as the registered address.

Memorandum of Association (MOA) is defined under section 2(56) of the Companies Act 2013. It is the foundation on which the company is built. It defines the constitution, powers and objects of the company.​ The Articles of Association (AOA) is defined under section 2(5) of the Companies Act. It details all the rules and regulations relating to the management of the company.

A Private Limited Company is a small company that is handled by a group of people privately. 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.

To add a director to a Private Limited Company, all you need is three things:

  • A valid Digital Signature Certificate(DSC)
  • Director Identification Number
  • A Consent letter from the proposed director.

Private Limited Company is the simplest and a very popular form of Business Registration in India. It can be registered with a minimum of two people. Limited liability protection to shareholders, ability to raise equity funds, separate legal entity status make it the most recommended type of business entity for millions of small and medium-sized businesses that are family-owned or professionally managed. When partners have limited liability at that time it is termed as Limited Liability Partnership (LLP). LLP is basically a combination of both Company and Partnership. It is an alternative form of business registration in India that is generally preferred by Professionals, medium and small- scale businesses. Limited it is governed by LLP Act, 2008 and as per the LLP agreement formed at the time of Incorporation.