Definition and Characteristics of Private Limited Company

Definition and characteristics of Private Limited Company

Private Companies

The growth of trade and business led to several issues that ancient varieties of business failed to solve. For instance, the unlimited liability feature of a sole ownership variety of business resulted in individuals forming partnership, however even that evidenced to be too inadequate and risky, This can be once the conception of  corporations emerged and personal corporations variety of business is that the oldest example of it.

A private limited Company is a separate legal entity shaped under Companies Act, 2013. It’s typically fashioned tiny businesses who need to possess an organization however keep its affairs personal. This type of business entity limits owner liability to their shares. Personal Limited Company is control by few people in camera having a separate legal entity. Below the New Companies Act, 1956 personal restricted firms enjoyed bound privileges. There have been provisions that were expressly not applicable on Private Company. However, the new act has changed that and quite few provisions that were applicable solely on public companies are currently applicable even on the private once.

A private limited Company is a legal business entity that gives restricted legal protection for investors and place restrictions on shareholder possession. There are three restrictions a private company has that are to guard investor investment and stop a takeover.

The shareholders cannot sell or transfer their shares while not initial giving them to alternative shareholders within the company. Shareholders should approve sale or transfers of shares. This protection prevents any takeovers by a investor or outside entity.

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Shareholders cannot provide their shares to the overall public on stock market. This not solely protects against a takeover, however it additionally protects the worth of company shares from association with the securities market.

Finally, the quantity of shareholders is restricted per the corporate bylaws. Typically, a private company has no over fifty shareholders. This is often the balance to the takeover and prevents dilution of the corporate stock across too several portfolios. Limiting the investors keeps the corporate manageable from a shareholder perspective creating it easier to satisfy the primary two characters.

Characteristics of Private Limited Company:

  • Members: To begin a company, a minimum variety of two members are needed and most variety of two hundred members as per the provisions of the Companies Act, 2013.
  • Limited Liability: The liability of every member or shareholders is proscribed. It means if a company faces loss underneath any circumstances then its shareholders are prone to sell their own assets for payments. The personal, individual assets of the shareholders aren’t in danger.
  • Perpetual succession – the company keeps on existing within the eyes of law even within the case of death, insolvency, the bankruptcy of any of its members. This results in perpetual succession of the company. The lifetime of the corporate keeps on existing forever.
  • Index of members – a private company encompasses a privilege over the general public company as they don’t have to keep associate index of its members whereas the general public company is needed to take care of associate index of its members.
  • Number of Directors: once it involves administrators a private company has to have solely two directors. With the existence of two administrators, a private company will inherit operations.
  • Paid up Capital: It should have a minimum paid capital of Rs 1 lakh or such higher quantity which can be prescribed from time to time.
  • Prospectus: Prospectus may be a elaborate statement of the company affairs that is issued by a company for its public. However, within the case of personal company, there’s no such have to be compelled to issue a prospectus as a result of during this public isn’t invited to subscribe for the shares of the company.
  • Minimum Subscription: It’s the number receive by the company that is ninetieth of the shares issued at intervals an exact amount of your time. If the company isn’t able to receive ninetieth of the number then they can’t start more business. Just in case of private company shares are often assigned to the general public while not receiving the minimum subscription.
  • Name: It’s obligatory for all the private company to use the word private limited after its name.
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Registration demand for Private Company

  • Members:
    A minimum variety of 2 and a most variety of two hundred members of shareholders are needed as per the Companies Act, 2013 before registration of the company.
  • Directors:
    A minimum variety of two administrators is needed for registering the private company. Every of the administrators ought to have DIN i.e. director positive identification number that is given by the ministry of company affairs. One of the Directors must be a resident of India which suggests he/she ought to have stayed in India for not but 182 days in previous twelve months.
  • Name: It’s one in all the key elements for a private company. The name of the company contains three elements i.e. the name, the activity and personal company. It’s necessary for all private companies to use the word Private Company at the tip of its name. Each company has got to send 5-6 names for approval to the registrar of the corporate and every one the names ought to be distinctive and communicatory. The name for approval shouldn’t agree with the other company’s’ name. Therefore, selecting the correct name is crucial part is it will stick with the company throughout the life.
  • Registered Office Address:
    Whereas going for the registration of the company, the owner ought to offer the temporary address of the company till is doesn’t get register, but once the company has been registered them its permanent address of its registered office ought to be suited with the registrar of the company. The Registered workplace of the company is wherever companies main affairs are been conducted and wherever all the documents are placed.
  • Getting digital signature Certificate:
    In today’s contemporary world everything is finished online. All documents are submitted electronically and for that, each company should acquire a digital signature certificate that is employed to verify the credibleness of the documents. A digital signature is obtained by all the administrators that are marked on all the documents by each director.
  • Professional Certification:
    During a company there are several professionals that have needed for several functions. For incorporating a private company certification by these professionals are necessary, numerous professionals like company secretary, controller, etc are needed to form their certificate at the time of company incorporation.

Author: Neha Ghuge,
Government Law College, Mumbai/Second Year

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