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.
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.
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.
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.
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.
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?
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.