“A good decision is based on knowledge and not on numbers.’’
Private limited companies are popular choices of a lot of entrepreneurs today but there are a few key decisions to be taken before company formation. A Private Limited Company is a company that is registered under the Companies Act, 2013. The word ‘private’ as simple as it is, means that the shares of such companies cannot be sold to the general public and also cannot be traded on any public platform.
The word ‘limited’ conveys that the liability of the shareholders towards their company is limited or restricted to the unpaid amount of share capital that they have individually subscribed to. This article surmounts to introduce some of the key decisions that must be taken before one registers a private limited company.
Capital Sharing Ratio
To set up a Private Limited Company, you need at least two shareholders. This number can be extended up to a maximum limit of 200 shareholders. The capital that is required to be invested in the company is shared between all the shareholders in a ratio mutually agreed by them. This ratio is termed as the “capital sharing ratio”, and is one of the first and foremost decisions that is required to be taken before forming a private limited company.
First Directors of the company
Directors are responsible for controlling the management of a company. A Private Limited Company can have a minimum of 2 and a maximum of 15 directors. However, the responsibility of the first directors of the company is way more than the subsequent directors. Therefore, choosing first directors of a company should be done with utmost careful consideration, and hence is another key decision that should be taken before setting up a company.
Nature of business
A company can be formed for any lawful purpose, However, we need to clearly choose the main or primary business activity for which the company is being formed. The promoters should restrict the activity to one class of business only, while legally incorporating the company with the Registrar of Companies.
Capital of Company
The requirement of capital depends on the needs of a particular business. While there are some businesses where the law has prescribed a minimum capital for the formation of businesses, that is not the case with a Private Limited Company. Therefore, it is at the discretion of the company to choose an initial capital for the company. This decision is also considered one of the most important decisions to be taken before establishing a Private Limited Company.
Registered Office
The Company must have a registered address for its main office or principal place of business. The registered address of the principal place of business is where the business will receive all its official communications. Also, the company has to maintain its books of account and other statutory records at the registered address of the company. Therefore, the address with which the company wants to be registered, is also a key choice to be made before starting the company.
Name of the Company
The name of a company is the most important aspect of its identity, and effectively communicates its brand in the market. Therefore, the name should be chosen with utmost carefulness and in confirmation to the legal guidelines or principles regarding the same. Such intricate consideration makes the name of the company one of the most important decisions to be taken before setting it up. Click here to learn more about the legal guidelines and principles for naming a company.
We hope that this blog has been helpful for you to understand the key decisions that are to be taken before starting a Private Limited Company, and that you can now make an informed decision over the legal structure you wish to establish your business with. How can Setindiabiz help?
How can Setindiabiz Help?
Here, at Setindiabiz, we provide assistance in the registration of all types of businesses, including the registration of a Private Limited Company. To avail our services of Company registration, request a callback from our startup advisors.
Great advice! It really helps to understand the important choices before registering a private limited company.