Last updated: October 14th, 2024 9:56 AM

What is a Private Limited Company in India?

"A private limited company is a business entity held by private stakeholders. In this case, the liability arrangement is limited liability, while the liability of a shareholder depends on the number of shares held by them." In India, a private limited company is the most popular type of business structure due to its various advantages, including limited liability protection, ease of formation and maintenance, and separate legal entity status. A private limited company is considered a separate legal entity from its owners and must have at least two members and two directors. 

Definition of Private limited company

Section 2(68) of the Companies Act 2013 defines a private company as follows: "Private company" means a company that has a minimum paid-up share capital as may be prescribed and which, by its articles,—

• (i) restricts the right to transfer its shares;
• (ii) Except in the case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for this clause, be treated as a single member: Provided further that—

• (A) Persons who are in the employment by the company; and
• (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,

Shall not be included in the number of members; and

• (iii) prohibits any invitation to the public to subscribe to any company securities.

Characteristics of a Private Limited Company

The characteristics of a private limited company in India are as follows:

• Limited Liability Protection:  Shareholders of a private limited company are only liable to the extent of their shareholding. This means that their assets are not at risk in case of financial losses incurred by the company.
• Separate Legal Entity: A private company is a separate legal entity from its owners. It has its legal identity and can own property, enter into contracts, and sue or be sued in its name.
• Minimum Number of Shareholders: A private limited company must have a minimum of two shareholders and a maximum of 200 shareholders.
• Minimum Number of Directors: A private limited company must have a minimum of two directors.
• It is mandatory for at least one director to be an Indian citizen.

Minimum share capital (in rupees)	Minimum Directors	Liability
1 Lakh	Two	Limited to its shares

• Name of the Firm: The name of the PVT company must end with the words "Private Limited."
• Share Capital: A private limited company must have a minimum paid-up capital of Rs.1 lakh or a higher amount as prescribed.
• Restrictions on Transfer of Shares: The right to transfer shares in a private limited company is restricted. Shares can only be transferred with the approval of the Board of Directors or following the Articles of Association of the company.
• Prohibition on Invitation to the Public: A private limited company is prohibited from inviting the public to subscribe to its shares or debentures.
• Compliance Requirements: Private limited companies must comply with various legal and regulatory requirements, such as maintaining proper books of accounts, holding annual general meetings, and filing annual returns with the Registrar of Companies.

Overall, the characteristics of a private limited company in India make it a popular choice for entrepreneurs looking to start a business due to its advantages and relatively simple structure.

Requirements to start a Private Limited Company

The following requirements must be fulfilled to start a private limited company in India:

• A minimum of two shareholders are required to start a private limited company. The maximum number of shareholders allowed is 200.
• A minimum of two directors are required to start a private limited company. At least one of the directors must be a resident of India.
• The Registrar must approve the proposed name of the company of Companies (ROC). The name must be unique and not similar to any other company name registered with the ROC.

The directors must obtain the following:

• Digital Signature Certificate
• Director Identification Number
• Permanent Account Number (PAN)
• Tax Deduction and Collection Account Number (TAN)
• The Company must register with other authorities such as the Goods and Services Tax (GST) department, Employee Provident Fund (EPF) department, and Professional Tax department, if applicable.
• Private limited companies must comply with various legal and regulatory requirements, such as maintaining proper books of accounts, holding annual general meetings, and filing annual returns with the ROC.

Starting a private limited company in India involves fulfilling the above requirements and complying with various legal and regulatory requirements. IndiaFilings can help you with Company Registration in India