Startups that have just entered the game or those planning on doing so start their businesses by registering as private limited companies. Almost 93 percent of the companies incorporated in India are registered as private limited companies.
The government has introduced a new concept called the One Person Company (OPC) for individuals who do not want to share ownership in the business. An OPC is also a private limited company. We will discuss both private limited companies and OPCs.
Entrepreneurs must know the following things before registering a company as a private limited company.
Earlier, the shareholders had to pay a minimum of Rs 1 lakh as a subscription amount to incorporate a private limited company. Looking at this amount, many startups chose to switch to sole proprietorship. Now, the government has dispensed with the minimum capital criteria, that is, now a company can be incorporated with ZERO capital.
But yes, the company will need capital to run a business. Therefore, it can increase its capital in future according to the requirement of the business.
Minimum two directors are required to incorporate a private limited company. Companies Act, 2013, has introduced the concept of One Person Company (OPC) private limited, in which a single individual can start a private limited company. Thus, if you plan to incorporate OPC, you can incorporate it with only one director.
Shareholders are owners of the company and they have certain rights, including appointment and removal of directors. A private limited company can be incorporated with a minimum of two shareholders. Again, with the introduction of OPC private limited, now a company can be incorporated with a single individual as the shareholder.
The shareholders could be natural persons or companies, including foreign companies. But in case of OPC private limited, only natural person can be the shareholder of the company.
An individual can hold the position of both a director as well as a shareholder in a private limited company, but a body corporate shareholder cannot hold the position of a director.
To incorporate a private limited company, a minimum of two shareholders are required and a maximum of 200 shareholders are allowed.
In case of OPC private limited, as the name says, there can’t be more than one shareholder.
At least one director of a private limited company must be a resident in India.
Resident in India means any person who has stayed in India for a total period of not less than 182 days in the previous financial year.
If you are planning to list your company’s shares on stock exchange you must go for public limited companies, since shares of private limited company cannot be listed and traded on stock exchange.
In case of private company there is restriction on transfer of shares to outsiders. If shareholders of a private company want to transfer their shares, they need to give a written notice to the company about his intention to transfer. The company would in turn notify other members of the company, stating that certain shares are available, which can be purchased by the members. However, if none of the members agrees to purchase the shares, the shares can be transferred to an outsider, to which the company cannot refuse.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)