What is a Private Limited Company?
A company is probably the most reputed form of carrying business in India. When compared with public companies, a private limited company by definition restricts the number of members (maximum 50), though only 2 persons are the minimum required to start a private limited company. A company is considered as a separate legal entity, perpetual succession, with liability of shareholders limited to the capital being contributed by them. Hence, a shareholder is not personally liable for the debts of the company. However, there are certain restrictions being imposed by the legislation on private limited companies, for instance, law prohibits private limited companies to invite general public to contribute to its capital or acceptance of deposits apart from members, directors or their relatives etc.
For small businesses, what are the benefits of Private Limited Companies?
For small businesses, what are the disadvantages of Private Limited Companies?
How to form a Private Limited Company?
Is there any qualification to become a director or shareholder in a Private Limited Company?
Any individual can become a shareholder in a private limited company. For becoming a director in a company, no professional or educational qualification is required. However to maintain trust and creditworthiness of companies, law prohibits certain persons to become directors, for example a person with unsound mind or an un-discharged insolvent can not become directors. Every director in a company must have Director Identification Number.
What is Director Identification Number (DIN)?
Any person intending to become director in a company, must apply for director identification number, issued by the Ministry of Corporate Affairs. Proof of identity and address is required to be submitted along with requisite fee while submitting the application for DIN. If the documents are in order, the DIN is approved within 3-4 days. The approved DIN is valid for life and the same DIN can be used by the director, even if he/she has directorship in more than one company.
What are the responsibilities of a director?
The director has been entrusted with the responsibility of managing the company in the best efficient manner. The responsibility of a director depends upon the kind of directorship he holds in the company. For instance, an executive director or a managing director has greater responsibility than a non-executive director who might hold the directorship as an expert or consultant. A director is liable for misconduct or fraud or if found guilty of default.
What address to be given as registered office of the company?
A registered office is required to hold Annual general meetings, for keeping records and receiving correspondence from all the statutory/government authorities. The registered office does not have to be necessarily owned by the company, it can be on rented premises also. The registered office of the company determines its jurisdiction for registration, for instance, a company with registered office in Delhi will come under the jurisdiction of Registrar of Companies, Delhi.
Is it allowed to change registered office of the company after registration?
Yes, a company can change its registered office anytime after following specified procedure. The changed address can be situated within the same state or in a different state from the state in which it was originally registered.
I am carrying business as a sole proprietor/partnership, can I register a private limited company?
Yes, a private limited company can be set up following provisions of Companies Act,1956
Is Private Limited Company structure suitable for my business?
As said before, the biggest benefit of starting a business with private limited company form of organization is the perception by all outside parties towards the business. A private limited company is perceived to be more trustworthy compared to other business structures. However, there are certain costs (like registration cost and compliance cost) associated with private limited company.
Though the decision of whether to set up the business as a private limited company or not, rests upon you, but it is advised that the entrepreneur closely evaluate all the pros and cons. In businesses which are in expansion mode or trustworthiness is an important part of business transactions, Private limited company form of structure can prove to be a good option.
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