Mostly preferred by Entrepreneurs
Private Limited Company is the most popular form of business entity among investors, a joint venture or 100% owned company in India. For the startups to have strong foundation and raise the funds in future Private Limited Company is a viable option. These are the companies which are privately held by the people. They are mostly preferred as a common business organization in India. Shareholders may operate the business themselves, or hire directors to manage the company on their behalf. Private Even there is general fear among entrepreneurs setting up a Private Limited Company relating to different tax filings & compliance or once they start their startup they will have to go through multiple tax registration and compliances but now they’ve been relaxed after the introduction of the GST.
The main key points to be kept in mind for starting a Private Ltd. Company are as follow:
1. Minimum 2 and maximum 200 members are required in Private Limited Company.
2. There is no requirement for minimum capital.
3. It shall have minimum two directors.
4. Transfer of share can be restricted as per articles of the company.
5. It can take loan from shareholders, directors and relatives of directors but not from the public. Shares cannot be issued to public.
6. Reduced compliance burden as per company law.
7. The words 'Private Limited' should be suffix or must come after the name of company. Many of the restrictive provisions of Companies Act are not applicable to Private Limited Company allowing flexibility and convenience unlike Public Limited Company.
The formation of a private company requires only a minimum of 2 subscribers to the memorandum of association. This facilitates formation and harmonious functioning of a private company and makes the choice of a company most suitable for family concern.
EXEMPTION FROM PROSPECTUS
Public participation by issuing a prospectus is prohibited. Therefore it’s exempt from all the requirements of the act relating to the prospectus. So it does need to file a statement and can proceed to allot shares without having to wait for anything known as minimum subscription.
It is required to appoint only 2 directors. All its directors can be permanent life directors; the requirement of retirement by rotation does not apply. The special 14 days notice required by the section 257(1) for the appointment of a new director in place of a retiring one does not apply to the case of a private company. It can even increase the number of directors beyond the permissible limit.
A private company is exempted from the requirement of holding statutory meetings and filling statutory report.
FURTHER ISSUE OF CAPITAL
A private company is free to allot new issues to outsiders unlike a public company which is confined to its existing members.
DISCLOSURE OF INTEREST
In a private company, an interested director is under no obligation to retire from a meeting of the board at which the subject-matter of his interest is discussed. He may participate in the proceeding and exercise his vote.
Private limited companies can be sold or transferred, either partially or in full, to another individual or entity without any disruption to the current business.
It is expected that in the coming years a large number of entrepreneurs would incorporate their entities to enter a startup friendly Indian market. It would happen because there is now simple taxation due to GST. GST will simplify the process by integrating all taxes, making the process of paying tax simpler and entrepreneur could save a lot of time and energy to manage the various taxes. Any startup would need its very own company and for these Private limited companies are a boon as it has various advantages. After the amendment in the Companies Act the government is providing more opportunities to the startups to enter in the market by simplifying it’s the rules and regulations.
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October 17, 2016
October 17, 2016
Stories by Swati Jain