FAQ on Private Limited Company
Q1. What is Private Limited Company ?
A type of company that offers limited liability, or legal protection for its shareholders but that places certain restrictions on its ownership. These restrictions are defined in the company’s by laws or regulations (Legally known as Articles of Association) and are meant to prevent any hostile takeover attempt. A private limited company by definition restricts the number of members (maximum 200), though only 2 persons are the minimum requirement to start a Private limited company. A company is considered as a separate legal entity having perpetual succession, with liability of shareholders limited to the capital being contributed by them. Hence, a shareholder is not personally liable for the debts of the company.FAQ on Private Limited Company
Q2. For small businesses, what are the benefits of Private limited company ?
It provides creditability to business in the eyes of financial institutions, suppliers and potential clients. As it makes easier for companies to get loans at favorable terms from banks or convincing potential clients while entering into deals.
Q3. How to form a Private Limited Company ?
- Any two or more members/ Persons can form a Private limited company.
- A minimum of two individual shall act as directors of the company. The shareholders (initial members/promoters) can themselves choose to become director. It is practically seen that generally shareholders are also directors of the same private limited company.
- Filing of required documents (Director Identification number, Application for name approval, Incorporation documents such as MOA/AOA/, registered address) with the Registrar of Companies.
- Minimum capital of Rs. one lakh (it can be used for business whenever required and does not necessarily have to be kept in bank/company deposit all the time).
Q4. Is there any qualification to become a director or shareholder in a Private Limited Company ?
Any individual can become a shareholder in a private limited company. For becoming a director in a company, no professional or educational qualification is required.
Q5. What is Director Identification Number (DIN) ?
Any person intending to become director in a company must apply for director identification number, issued by the Ministry of Corporate Affairs. Proof of identity and address is required to be submitted along with requisite fee while submitting the application for DIN. If the documents are in order, the DIN is approved within 3-4 days. The approved DIN is valid for life and the same DIN can be used by the director, even if he/she has directorship in more than one company.
Q6. What are the responsibilities of a director ?
The director has been entrusted with the responsibility of managing the company in the best efficient manner. The responsibility of a director depends upon the kind of directorship he holds in the company. For instance, an executive director or a managing director has greater responsibility than a non-executive director who might hold the directorship as an expert or consultant. A director is liable for misconduct or fraud or if found guilty of default.
Q7. What address to be given as registered office of the company ?
A registered office is required to hold Annual general meetings, for keeping records and receiving correspondence from all the statutory/government authorities. The registered office does not have to be necessarily owned by the company, it can be on rented premises also. The registered office of the company determines its jurisdiction for registration, for instance, a company with registered office in Delhi will come under the jurisdiction of Registrar of Companies, Delhi.
Q8. Is it allowed to change registered office of the company after registration ?
Yes, A company can change its registered office any time after following specified procedure. The changed address can be situated within the same state or in a different state from the state in which it was originally registered.
Q9. I am carrying business as a sole proprietor/partnership, can I register a private limited company ?
Yes, A private limited company can be set up following provisions of Companies Act, 1956
Q10. Is Private Limited Company structure suitable for my business ?
As said before, the biggest advantage of starting a business with private limited company form of organization is the outlook by all outside parties towards the business. A private limited company is perceived to be more trustworthy compared to other business structures. Though the decision of whether to set up the business as a private limited company or not, rests upon you, but it is advised that the entrepreneur closely evaluate all the merits and demerits . In businesses which are in expansion mode or trustworthiness is an important part of business transactions, Private limited company form of structure can prove to be a good option.