Private Limited Company - A Complete Guide Under the Companies Act, 2013

What is a Private Limited Company? A Complete Guide Under the Companies Act, 2013

Introduction

When it comes to choosing a legal structure for starting a business in India, one of the most preferred options is a Private Limited Company (Pvt Ltd).

Entrepreneurs, small businesses, and startups often opt for this model because it provides credibility, limited liability, and growth opportunities.

In this blog, we will walk you through everything you need to know about a Private Limited Company as per the Companies Act, 2013.

Definition of Private Limited Company 

Under Section 2(68) of the Companies Act, 2013, a Private Company is defined as:

"A company having a minimum paid-up share capital as may be prescribed, and which by its articles— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred; and (iii) prohibits any invitation to the public to subscribe for any securities of the company."

This means a private limited company operates privately and cannot raise funds from the public through share issuance.

Key Features of a Private Limited Company

1. Limited Liability: Shareholders’ liability is limited to the extent of their shareholding.
2. Separate Legal Entity: The company is different from its owners. It can own the property in its name, sue or be sued in its own name.
3. Minimum and Maximum Members: it requires minimum 2 members and allows maximum of 200 members.
4. Restriction on Share Transfer: Shares cannot be freely transferred; approval of other shareholders is typically required.
5. No Public Fundraising: Cannot invite the public to subscribe for shares or debentures.

Incorporation Requirements

To incorporate a private limited company in India, the following criteria must be met:

1. Directors: There has to be minimum 2 directors (at least one must be an Indian resident).
2. Shareholders: There has to be minimum 2 shareholders (can be the same as the directors).
3. Digital Signature Certificate (DSC): it Requires for online filing.
4. Director Identification Number (DIN): Each and every director must have a DIN or need to apply during the process of incorporation.
5. Company Name: Must be unique and end with "Private Limited".
6. Memorandum and Articles of Association (MOA & AOA): Legal documents that define the company’s scope and internal rules.
7. Registration: One need to file incorporation documents with the Ministry of Corporate Affairs (MCA) through the SPICe+ form.

Compliance & Legal Obligations 

After incorporation, a private limited company must meet several ongoing compliance requirements:

• Annual Filings: Company need to submit Form AOC-4 (financial statements) and MGT-7 (annual return) annually.
• Board Meetings: Company need to hold at least 2/4 board meetings each financial year.
• Auditor Appointment: Company need to appoint a statutory auditor within 30 days of incorporation.
• Maintaining Statutory Registers: Company need to maintain which includes registers of members, directors, charges, etc.
• Income Tax Filing: Annual filing of ITR is mandatory.

Forgetting to comply the provision of law can result in hefty penalties and legal complications.

Benefits of a Private Limited Company

1. Limited Liability Protection: Personal assets of shareholders are protected.
2. Credibility: Preferred by banks and investors.
3. Perpetual Succession: The company continues even if ownership changes.
4. Funding Opportunities: Attracts angel investors and venture capital.
5. Separate Ownership and Management: Allows professional managers to run the company.

Private Limited Company vs LLP vs Sole Proprietorship

Feature	Pvt Ltd Company	LLP	Sole Proprietorship
Legal Status	Separate Legal Entity	Separate Legal Entity	Not a Separate Entity
Liability	Limited	Limited	Unlimited
Members	2-200	2 or more	Only 1
Compliance	High	Medium	Low
Taxation	Corporate Tax	Corporate Tax	Personal Tax Rate

 

FAQs on Private Limited Company – Companies Act, 2013

1. What is a Private Limited Company?

A Private Limited Company is a type of company incorporated under the Companies Act, 2013, which:

• Limits the number of its members to 200 (excluding present and past employees),
• Restricts the right to transfer shares, and
• Prohibits any invitation to the public to subscribe for its securities.

2. Which section of the Companies Act, 2013 defines a Private Company?

Section 2(68) of the Companies Act, 2013 defines a Private Company.

3. What is the minimum number of directors required in a Private Limited Company?

A Private Limited Company must have at least two (2) directors.

4. What is the minimum number of shareholders required?

It must have a minimum of two (2) shareholders and a maximum of 200.

5. What is the minimum capital requirement for a Private Limited Company?

There is no minimum paid-up capital requirement under the Companies Act, 2013.

6. Can a Private Limited Company issue shares to the public?

No. A Private Company cannot issue shares to the public or make any public offer for securities.

7. Is it mandatory to add “Private Limited” at the end of the company name?

Yes. As per Section 4(1)(a), every Private Company must use “Private Limited” or “Pvt Ltd” as a suffix to its name.

8. Can a Private Company be converted into a Public Company?

Yes. A Private Company can be converted into a Public Company by altering its Articles of Association and complying with the provisions under Section 14 of the Companies Act, 2013.

9. Is it mandatory to have a Company Secretary in a Private Limited Company?

A Company Secretary is not mandatory unless the company is a listed company or has a paid-up share capital of ₹10 crores or more.

10. What are the compliance requirements for a Private Limited Company?

Some key compliances include:

• Holding Board meetings and AGMs (if applicable),
• Filing Annual Return (Form MGT-7) and Financial Statements (Form AOC-4),
• Maintaining statutory registers and books of accounts,
• Appointing an auditor and conducting annual audits.

11. Who can become a director in a Private Company?

Any individual above 18 years of age (resident or non-resident) can become a director. At least one director must be an Indian resident.

12. Can a foreigner or NRI incorporate a Private Limited Company in India?

Yes. A foreigner or NRI can incorporate a Private Limited Company in India under the automatic route of FDI, with at least one Indian resident director.

13. What are the benefits of registering as a Private Limited Company?

• Limited liability protection
• Separate legal entity
• Better access to funding
• Perpetual succession
• Professional status

14. Can a Private Limited Company own property?

Yes. Being a separate legal entity, it can own property in its own name.

15. Is a Private Limited Company allowed to give loans to its directors?

As per Section 185 of the Act (with amendments), loans to directors are restricted, but exceptions are available under certain conditions.

16. Can a Pvt Ltd company own property?

Yes, it can hold assets in its own name.

17. What is the minimum capital required to start?

There is no minimum capital requirement under the Companies Act, 2013.

18. Does a Private Limited Company need to file PAS-6?

The Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023, introduced Rule 9B, extending the mandate for dematerialization of securities to certain Private Companies.

This amendment aligns the compliance requirements of private companies with those previously applicable to unlisted public companies under Rule 9A.

Key Points:

1. Applicability:
• Non-Small Private Companies are now required to:
• Issue and facilitate the dematerialization of their securities.
• File Form PAS-6 (Reconciliation of Share Capital Audit Report) on a half-yearly basis.
• Exemptions: Small companies, Nidhi companies, government companies, and wholly owned subsidiaries are exempt from these requirements.​
2. Compliance Timeline:
• Companies must comply within 18 months from the end of the financial year 2022-2023, i.e., by September 30, 2024.​
• However, the MCA extended this deadline to June 30, 2025.
• This extension was announced through a notification dated February 12, 2025.
3. Action Steps:
• Obtain an ISIN (International Securities Identification Number): Private companies must acquire an ISIN for their securities to enable dematerialization.​
• Notify Security Holders: Inform all existing security holders about the dematerialization process and facilitate the conversion of physical shares to electronic form.
• File Form PAS-6: Submit this form to the MCA within 60 days after the end of each half-year, detailing the reconciliation of share capital held in dematerialized and physical forms. ​

In summary, Non-Small Private Limited Companies are now required to dematerialize their securities and comply with the filing of Form PAS-6 starting from the half-year ending March 31, 2025.

It's essential for such companies to initiate the dematerialization process promptly to meet the compliance deadline of September 30, 2024.

Consulting with professional is advisable to ensure all procedural requirements are accurately fulfilled.​

Conclusion

A Private Limited Company offers a robust framework for running a business with credibility and legal protection.

While the registration and compliance may seem complex, the advantages far outweigh the administrative tasks.

If you're serious about starting a business in India, a Private Limited Company is one of the best options to consider. Always consult a professional to ensure smooth setup and compliance.

Read more on: Draft Board Resolution for Redemption of Debentures