A Private Limited Company (Pvt Ltd Company) is the most common and preferred legal structure for businesses in India, especially for startups and growing enterprises. It is a type of company that is privately held, offers limited liability to its owners (shareholders), and has restrictions on the transfer of its shares. It is governed by the Companies Act, 2013, and is registered with the Ministry of Corporate Affairs (MCA).
Key Characteristics of a Private Limited Company
Separate Legal Entity
A Private Limited Company is a separate legal entity distinct from its shareholders (owners) and directors (managers). This means the company can own assets, incur debts, enter into contracts, sue, and be sued in its own name.
Limited Liability
The liability of the shareholders is limited to the unpaid amount on their shares. Their personal assets are protected from the company’s debts and losses. This is a crucial advantage compared to proprietorships or traditional partnerships.
Perpetual Succession
The company has perpetual succession, meaning its existence is not affected by the death, insolvency, retirement, or change of its shareholders or directors. It continues to exist until it is legally wound up.
Minimum & Maximum Members/Shareholders
- Minimum: 2 shareholders
- Maximum: 200 shareholders (excluding past and present employee-shareholders).
Minimum & Maximum Directors
- Minimum: 2 directors
- Maximum: 15 directors (can be increased with a special resolution).
- At least one director must be a resident in India (stayed in India for at least 182 days in the previous calendar year).
No Minimum Capital
As per the Companies (Amendment) Act, 2015, there is no minimum paid-up share capital requirement to incorporate a private limited company.
Restriction on Share Transfer
Shares of a private limited company are not freely transferable. The Articles of Association (AOA) typically restrict the right to transfer shares, often giving existing shareholders the right of pre-emption (first right to buy shares if a shareholder wants to sell). Shares cannot be offered to the general public.
Prohibition on Public Invitation
A private limited company cannot invite the public to subscribe to its shares or debentures, nor can it list its shares on any stock exchange.
“Private Limited” Suffix
The name of every private limited company must end with the words “Private Limited” (or “Pvt. Ltd.”).
Advantages of a Private Limited Company
Limited Liability
Offers crucial protection to shareholders’ personal assets.
Separate Legal Entity
Enhances credibility, allows the company to own assets, and enter contracts independently.
Perpetual Succession
Ensures business continuity and stability regardless of changes in ownership or management.
Easier Access to Funding
Highly preferred by banks, financial institutions, angel investors, and venture capitalists for equity funding due to its structured legal framework and ability to issue shares.
Credibility & Professionalism
Recognized globally, it projects a more professional and credible image to customers, suppliers, and investors.
Employee Stock Option Plans (ESOPs)
Can offer ESOPs to employees, a great tool for attracting and retaining talent.
Foreign Direct Investment (FDI)
100% FDI is allowed under the automatic route in most sectors, making it easy for foreign individuals or entities to invest.
Scalability
Provides a robust legal framework for scaling operations and expanding the business.
Tax Benefits
Can avail various tax benefits and deductions applicable to companies. The corporate tax rate is currently around 25.17% (including cess and surcharge) for companies with turnover up to ₹400 crore.
Disadvantages of a Private Limited Company
Higher Compliance Burden
Significantly more legal and regulatory compliances compared to proprietorships or partnership firms. This includes regular filings with MCA, mandatory audits, board meetings, etc.
Higher Cost of Incorporation and Compliance
The initial setup cost is higher, and ongoing compliance costs (auditor fees, professional fees for filings) are substantial.
Strict Regulations
Governed by the Companies Act, 2013, which has comprehensive and strict provisions.
Public Disclosure
Certain company information and financial statements are publicly accessible on the MCA website, reducing privacy.
Restrictions on Share Transfer
While offering limited liability, the restriction on free transferability of shares can sometimes make it difficult for shareholders to exit easily.
Administrative Burden
Requires maintaining statutory registers, conducting board and shareholder meetings, and meticulous record-keeping.
Private Limited Company Registration Process in India (Online with MCA)
The entire incorporation process for a Private Limited Company is online, through the Ministry of Corporate Affairs (MCA) portal. The integrated form SPICe+ (Simplified Proforma for Incorporating Company Electronically Plus) streamlines many steps into one application.
Obtain Digital Signature Certificate (DSC)
- All proposed Directors and subscribers (who will sign the MOA/AOA) must obtain a Class 3 Digital Signature Certificate (DSC). This is essential for signing electronic forms.
Obtain Director Identification Number (DIN)
- Every individual who intends to be a director in a company must obtain a DIN.
- For new companies, DINs for up to three directors can be applied directly within the SPICe+ form itself (Part A). If there are more than 3 directors without DIN, they can be appointed later.
Name Reservation (Part A of SPICe+ or RUN service)
- Propose up to two names for the company in Part A of the SPICe+ form. The name must be unique and not similar to any existing company, LLP, or registered trademark.
- Alternatively, you can use the standalone RUN (Reserve Unique Name) service for name approval first, and then proceed with SPICe+ Part B.
- Once approved, the name is reserved for 20 days.
Prepare Memorandum of Association (MOA) and Articles of Association (AOA)
- MOA (INC-33): The charter of the company, defining its fundamental objectives, powers, and relationship with the outside world. It includes the company’s name, registered office state, objects (business activities), liability of members, and capital clause.
- AOA (INC-34): Contains the internal rules and regulations for the management of the company’s internal affairs, including share capital, voting rights, director appointments, meeting procedures, etc.
- These are now filed electronically as e-MOA and e-AOA.
File Integrated Incorporation Form (SPICe+ Part B)
- This is the main incorporation form. It’s a web-based form used for:
- Company incorporation.
- Allotment of DIN (if not already obtained).
- Application for company’s PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number).
- Mandatory registration for EPFO (Employees’ Provident Fund Organisation) and ESIC (Employees’ State Insurance Corporation) (if applicable based on employee count).
- Opening a company bank account (mandatory for some banks, integrated through AGILE-PRO-S).
- Application for GSTIN (Goods and Services Tax Identification Number) (optional, if you require it at the time of incorporation).
- Fill in all details of the proposed company, directors, shareholders, share capital, registered office address, and business activities.
- Attach all required documents (as listed below) digitally.
- Pay the prescribed government fees (registration fees, stamp duty on MOA/AOA, etc.).
- This is the main incorporation form. It’s a web-based form used for:
Issuance of Certificate of Incorporation (COI)
- Upon successful verification and approval of the SPICe+ form and attachments, the Registrar of Companies (ROC) issues the Certificate of Incorporation (COI).
- This certificate is the legal proof of the company’s birth and includes the Corporate Identity Number (CIN), PAN, and TAN of the company.
- An email containing the COI, PAN, and TAN is sent by the MCA.
Open a Bank Account
- Once the COI and PAN are received, open a current bank account in the name of the Private Limited Company.
Documents Required for Private Limited Company Registration (Commonly)
For Directors & Shareholders (Indian Nationals)
- PAN Card: Mandatory.
- Identity Proof: Aadhaar Card, Voter ID, Driving License, or Passport.
- Address Proof: (Not older than 2 months) Bank Statement, Electricity Bill, Telephone Bill, Mobile Bill.
- Passport-sized Photograph: Recent.
For Directors & Shareholders (Foreign Nationals / NRIs)
- Passport: Mandatory (attested by Indian Embassy/Notary in their country).
- Address Proof: (Not older than 2 months) Driving License, Bank Statement, Residence Card, or any government-issued ID containing the address (attested).
- VISA Copy and Entry Stamp: If a foreign national is physically present in India.
For Registered Office Address
- Proof of Registered Office:
- If Rented: Rent agreement/lease deed (on stamp paper) and latest utility bill (electricity, gas, or telephone bill, not older than 2 months).
- If Owned: Sale deed/property deed and latest utility bill.
- No Objection Certificate (NOC): From the property owner/landlord permitting the use of the premises as the registered office of the company.
Other Documents/Information
- Details of the company’s main business activities (objects clause).
- Shareholding pattern (how many shares each subscriber will take).
- Nominal/Authorized share capital.
- Subscriber Sheet (part of MOA/AOA).
Post-Incorporation Compliances for a Private Limited Company
Once incorporated, a Private Limited Company has significant ongoing statutory compliances with the MCA, Income Tax Department, and other regulatory bodies. Failure to comply can lead to heavy penalties and even striking off the company.
Key Annual/Regular Compliances
Commencement of Business (Form INC-20A)
File this form within 180 days of incorporation, after subscribers have paid for their shares and the company has a registered office.
Appointment of Auditor (Form ADT-1)
Mandatory. The first auditor is appointed by the Board within 30 days of incorporation, and subsequent auditors are appointed in the AGM. Form ADT-1 is filed with ROC for a 5-year appointment.
Directors’ KYC (Form DIR-3 KYC)
Annually, every director must file this form to update their details with MCA.
Board Meetings
- Minimum 4 board meetings in a calendar year, with a maximum gap of 120 days between two meetings.
- For small companies/startups, usually 2 board meetings in a half-year are sufficient.
Annual General Meeting (AGM)
Mandatory. Must be held within 6 months of the end of the financial year (first AGM within 9 months of the close of the first financial year).
Annual Return (Form MGT-7)
Filed within 60 days of the AGM. Contains details of shareholders, directors, capital, etc.
Financial Statements (Form AOC-4)
Filed within 30 days of the AGM. Includes the Balance Sheet, Profit & Loss Account, and Director’s Report.
Statutory Audit
Mandatory for all companies, regardless of turnover or capital.
Income Tax Returns (ITR-6)
Annual filing of corporate tax returns.
TDS/TCS Returns
Quarterly filing if applicable.
GST Returns
Monthly/quarterly/annual filing, if GST registered.
EPF/ESIC Returns
Monthly/bi-annual returns if registered.
Professional Tax
Monthly/annual returns, if applicable in the state.
Maintenance of Statutory Registers & Records
Maintaining registers of members, directors, charges, minutes books of board and general meetings, etc., at the registered office.
Get help from our tax experts for registration a Private Limited Company. A Private Limited Company structure is highly recommended for businesses that envision growth, seek external funding, require limited liability protection, and aim for a professional and credible image. While it comes with higher compliance requirements, the benefits often outweigh the challenges for scalable ventures.