Private Limited Company
A Private Limited Company in India is similar to a C-Corporation in the US. Private Limited Company allows owners to subscribe to its shares by paying a share capital fees. On subscribing to shares, the owners/members become shareholders on the company. A Private Limited Company is a separate legal entity both in terms of taxation as well as liability. The personal liability of the shareholders is limited to their share capital. A private limited company can be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are prepared and signed by the promoters (initial shareholders) of the company. A Private Limited Company can have between 2 to 50 members with minimum share capital of Rs 1,00,000 (one lac). To look after the day to day activities of the company, Directors are appointed by the Shareholders. Minimum two Directors must be appointed to look after the daily affairs of the company. A Private Limited Company has more compliance burden when compared to a Partnership and LLP. For example, the Board of Directors must meet every quarter and at least one annual general meeting of Shareholders and Directors must be called. Accounts of the company must be prepared in accordance with Income Tax Act as well as Companies Act. Also Companies are taxed twice if profits are to be distributed to Shareholders. Closing a Private Limited Company is a tedious process and requires many months.
One the positive side, Shareholders of a Private Limited Company can change without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses that are Private Limited Company since it allows great degree of separation between ownership and operations. It also allows investors to exit the company by selling shares without being liable for company affairs.