Private Limited Company and its basic Concepts


When 2 or more persons want to start their business with any common object then they have an option to start it by opening a company. The company can be a Private Limited company or a public company. A private company can be open by 2 or more members. A private company is defined u/s 2(68) of the companies Act, 2013.

Note: For a listing of shares in any stock exchange, the company should be public limited company i.e., Private company can never list its shares in the stock exchange. If a private company wants to list its shares then first it has to convert it in the public company.

In the case of the private company, the company’s last words must end with “Private Limited” and Public company’s last words must end with “Limited”. For the incorporation of the company, Form INC-32 is required to be filed.

private limited company

Some other important points for a private Company 

  1. As of now, there is no minimum capital requirement for the incorporation of a private company.
  2. Minimum 2 members are required for the creation of a private company except if it is a one-person company in which it can be incorporated with one member only.
  3. The maximum number of members in a private company is 200.
  4. In a private company, the right to transfer its shares by the members is restricted.
  5. The private company is prohibited for the invitation to subscribe to the securities of the company.
  6. A Small company and One person company can be only a private company.

Note: Small company means a private company having a paid-up share capital up to 50 lakhs AND Turnover in the last Profit and loss Account is up to 2 Crores. Although it should not be section 8 company or Holding or subsidiary company.

Benefits for incorporating a Private company

As we already discussed above that the company can be a public company or a private company, however, both have their own advantages. The benefits of creating a private company are as follows:

  1. As compared to a public company, a private company can be incorporated with only 2 members.
  2. Since the private company is small as a comparison to a public company, hence, the company’s Act, 2013 has provided various exemptions to a private company. 

For Example:

A private company is exempted for 

  • Appointment of a women director. (Section 149)
  • Appointment of an Independent director. (Section 149)
  • Filing of form MGT-14 to ROC for the adoption of financial statements.(Section 179(3)).
  • Creation of Audit Committee (Section 177) etc.
  1. Since the company is created with less number of members in which generally it is family members or friends, hence decision can be taken quickly. Also, these members are the real owners of the company.
  2. This point is applicable for all the limited liability company, as the liability of the members is limited to its nominal value of the shares held by them.
  3. There are certain sections also given in income tax act, 1961, which provides exemptions to the assets in their business. For Example section 35ADunder PGBP, 80JJAA, etc.

Characteristics of a Company 

  • Separate Legal Entity: When a company is being registered, it is clothed with a separate entity. It has the same rights and obligations as a human being. Its existence is distinct and separate from its members. 
  • Perpetual Succession:  Members of the company may die or change, but the company goes on till it wound up on the grounds specified in the act. In simple words, its existence is not affected by the death or insolvency of the members.
  • Limited Liability: The liability of the member is dependent upon the type of the company of which he is a member. Thus,
    • In the case of limited liability company: The liability of the members is limited to the extent of the nominal value of shares held by them.
  • In the case of a company limited by the guarantee: Members are liable to the extent of the amount of guarantee given by the company and too only when the company goes into the liquidation.
  • In the case of an unlimited company: The liability of the members is unlimited as well.
  • Artificial Legal person: Company is an artificial legal person that means a company is created by following a particular process rather than natural birth. Although, the company can contract, sue or to be sued in its own name.
  • Common Seal: Common seal is an official signature of the company, which is affixed by the authorized signatory of the company on its documents.

Procedure to be followed for the incorporation of the company

For the registration of the company, the following documents are required to be filed to ROC:

  1. Memorandum and Articles of the company signed by the subscribers of the memorandum.
  2. A declaration by the persons whose name is in the articles as a director or secretary and CA/CS/CWA that all the requirements of the act, rules, and regulations made thereunder have been complied with.
  3. Address of the promoters till its registered office of the company is established.
  4. Name, Address, Nationality of the subscriber of the company.
  5. Director identification number of the first director of the company.
  6. Identity proof and address proof

Earlier, It was a very long process for the incorporation of the company but recently MCA has issued a new form of INC-32 which is a very simple form for the creation of the company electronically. Through this form, the company can be created with a single application for the reservation of the name, application of allotment of the director identification number. It has integrated many forms into a single form.

After filling this form, it would be sent to the ROC with the attachment of above-specified documents. If all the details are found complete, the company shall be registered and CIN would be given.

Also, This form also is used for issuing DIN number to the maximum 3 proposed directors who don’t have a valid DIN.

In addition to issuing of DIN, this form also helps for providing the incorporation certificate, Company’s PAN number, TAN Number.

Mandatory Compliance for the Private Company 

As per the companies act, 2013 read with the rules and regulations made thereunder, a private company is required to comply with curtails requirements. I have mentioned some major mandatory requirement below:

  1. Company shall print its CIN No. on its letterheads, business letter, etc. [Section 12(3)]
  2. Paint/affix the name and address of registered office outside the place of business, engrave a name on the seal and mention name and registered office address in all its business correspondences, negotiable instruments and in all bills of parcels, invoices, receipts, and letters of credit. [Section 12(3)]
  3. Minutes book of the Board of directors and General Meeting shall be maintained and each page of such minutes shall be numbered and signed by the chairperson of the meeting and of the next meeting. [Section 118 and Secretarial Standard 1]
  4. If Corporate Social Responsibility (CSR) provisions are applicable then whether CSR Committee is constituted and CSR Policy is finalized. (CSR is mandatory for all companies with turnover >= Rs. 1000 crores, Net Profit >=5 crores and net worth >=500 crores [Section 135]
  5. At least one director who has stayed in India for a total period of not less than 182 days in the previous calendar year. [Section 149(3)]
  6. If, any persons authorized by the company, is filing any form or return on the behalf of the company, shall enter the Director Identification Number(DIN) in such return, information or particulars.[Section-158]
  7. Check whether Internal Audit is applicable. (Private companies having a turnover of Rs. 200 crores or more or borrowings Rs. 100 crores or more). [Section 138]
  8. The Company shall hold the minimum number of four meetings of its Board of Directors every financial year in such a manner that the maximum gap between two meetings should not be more than 120 days. A company should hold at least 1 (one) Board Meeting in every quarter.

For OPC, Small Company, dormant company and a private company which is a start-up, are required to hold at least one board meeting in each half of the year and the gap between 2 meetings should be at least 90 days. [Section 173]

  1. Appoint Company secretory in Private companies with capital>= 5 crores.[Section 203]
  2. If the Company has its own website then it should update its Website as required under the provisions of the Act.

Register your Private Limited Company

Annual Compliances for Private Company 

  1. Every Director of the Company shall disclose his interest in other entities, in its first meeting of Board at each financial year in Form MBP-1. Fresh MBP-1 is required to be submitted whenever there is a change in interest from the earlier given MBP-1. [Section 184(1)]
  2. Every Director of the Company is required to give the disclosure of his non-disqualification in Form DIR-8 in each Financial Year to the company. [Section 164 (2)]
  3. The Company is required to file Annual Return form within 60 days of Annual General Meeting in Form MGT-7. Annual Return is to be filed for the period 1st April to 31st March. [Section 92]
  4. The Company should file its Balance Sheet, Statement of Profit and Loss, Cash Flow Statement and Director’s Report in Form AOC-4 within 30 days of AGM. [Section 137]
  5. Director’s report to be prepared and annexed to Financials. It should be signed by the “Chairperson” who is authorized by the Board and where he is not so authorized then by at least 2 Directors out of which, one should be the Managing Director if any.[Section 134]
  6. Hold an Annual General Meeting on or before 30th September every year during business hours, on a day that is not a public holiday and either at the registered office of the Company or within the area where its registered office is situated. [Section 96(2)].
  7. The auditor will be appointed for the 5 years and form ADT-1 will be filed for a 5-year appointment. Earlier there was a provision that after that every year an Annual General Meeting (AGM), Shareholders will ratify the appointment of Auditor but there is no need to file ADT-1 for ratification, however, in the recent amendments in the companies act, the ratification requirements have also been removed. Intimate the auditors of his appointment at the AGM to hold office until the conclusion of the nth AGM within 15 days from the AGM. [Section 139].

Company master data and its director details

If any person desires to check the details of any private company then he can check through the MCA site in Company master data by entering the Name or CIN number of the company. Also, here we can also check that in how many companies, the director of the company, is a director.