Publish Date: April 6, 2023
A private limited company is a type of business structure in India that is privately held and has limited liability. It is a separate legal entity from its shareholders and directors, which means that the company can enter into contracts, own property, sue and be sued in its own name.
To start a private limited company in India, a minimum of two shareholders and two directors are required. The shareholders can be individuals or other companies, and the directors must be individuals. At least one of the directors must be a resident of India.
To register a private limitedcompany in India, the company’s name must be approved by the Registrar of Companies (ROC). Once the name is approved, the company must file its incorporation documents with the ROC, which includes the Memorandum of Association (MOA) and the Articles of Association (AOA). The MOA and AOA outline the company’s objectives, rules and regulations, and how the company will be managed.
In terms of taxation, private limited companies in India are subject to corporate income tax on their profits. The current rate of corporate income tax is 25% for companies with a turnover of up to INR 400 crores (approximately USD 54 million) and 30% for companies with a turnover above INR 400 crores.
Private limited companies in India have several advantages, including limited liability protection for its shareholders, easier access to funding and credit, and better business credibility. However, they also have some disadvantages, such as higher compliance requirements and a more complex organizational structure.
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1. Minimum and maximum number of members: A private limited company in India must have a minimum of two members and can have a maximum of 200 members.
2. Director requirements: A private limited company must have a minimum of two directors, and at least one of them must be a resident of India. Directors must be individuals, not companies or other entities.
3. Share capital: A private limited company must have a minimum authorized share capital of INR 1 lakh, and there is no maximum limit.
4. Separate legal entity: A private limited company is a separate legal entity from its shareholders and directors, which means that it can own property, enter into contracts, sue and be sued in its own name.
5. Limited liability: Shareholders of a private limited company have limited liability, which means that they are not personally liable for the debts or losses of the company.
6. Annual compliance requirements: Private limited companies in India must comply with various legal and regulatory requirements, including holding an annual general meeting, filing annual returns with the Registrar of Companies, maintaining proper accounting records, and preparing financial statements.
7. Taxation: Private limited companies in India are subject to corporate income tax on their profits. The current rate of corporate income tax is 25% for companies with a turnover of up to INR 400 crores and 30% for companies with a turnover above INR 400 crores.
8. Shareholder agreements: Shareholders of a private limited company should consider drafting a shareholder agreement to clarify their rights and obligations, including matters such as dividend distribution, transfer of shares, and dispute resolution.
9. Exit strategy: It is important to have an exit strategy in place, such as a buyback agreement or a sale of shares, in case a shareholder wishes to exit the company.
