Setting up a business in India often involves opting for a Private Limited Company due to its many advantages, such as limited liability protection for shareholders and a clear distinction between the roles of directors and shareholders. This makes it an attractive choice for entrepreneurs looking to formalize their business.
To operate a Private Limited Company, a minimum of two members and two directors are required. Below are the main features of a Private Limited Company in India:
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Limited Liability Protection:
Shareholders’ liability is limited to their shareholding, meaning their personal assets are protected in case the company faces financial difficulties.
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Separate Legal Entity:
A Private Limited Company has its own legal identity, allowing it to own property, enter contracts, and engage in legal actions independently of its shareholders and directors.
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Minimum Number of Shareholders:
A Private Limited Company must have at least two shareholders, with a maximum of 200 shareholders.
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Minimum Number of Directors:
A Private Limited Company requires at least two directors, with one being an Indian citizen.
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Minimum Share Capital:
The company must have a minimum paid-up capital of ₹1 lakh, or a higher amount as specified.
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Company Name:
The company’s name must end with the words "Private Limited".
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Restrictions on Share Transfer:
Share transfers are restricted and can only happen with the approval of the Board of Directors or according to the company’s Articles of Association.
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Prohibition on Public Invitation:
A Private Limited Company cannot invite the public to subscribe to its shares or debentures.
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Compliance Requirements:
Private Limited Companies are required to adhere to various legal and regulatory obligations, such as maintaining financial records, conducting annual general meetings (AGMs), and filing annual returns with the Registrar of Companies (RoC).
Types of Private Limited Companies in India
Entrepreneurs should be aware of different types of Private Limited Companies when considering incorporation
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Company Limited by Shares:
In this structure, shareholders’ liability is limited to the nominal value of shares they own.
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Company Limited by Guarantee:
In this type, members’ liability is limited to the guarantee amount they have committed in the company’s Memorandum of Association. This guarantee is only invoked during winding up.
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Unlimited Company:
This type of company has no limit on the liability of its members. However, it remains a separate legal entity, and individual members cannot be sued for the company's debts.