What is a Private Limited Company?
A Private Limited Company is a separate legal entity with limited liability. It is the most preferred structure for startups and growing businesses in India, governed by the Companies Act, 2013.
Key Features: Separate legal entity, limited liability, perpetual succession, ability to raise funds, higher credibility.
Characteristics of Private Limited Company
- Members: Minimum 2, Maximum 200
- Directors: Minimum 2, Maximum 15
- Name: Must end with "Private Limited"
- Share Transfer: Restricted (cannot be traded publicly)
- Public Subscription: Cannot invite public for share subscription
Advantages
- Limited Liability: Shareholders liable only to unpaid share amount
- Separate Legal Entity: Company owns assets in its own name
- Perpetual Succession: Company continues despite member changes
- Fundraising: Can raise capital through equity, debt, venture capital
- Credibility: Higher trust from banks, clients, and vendors
- ESOPs: Can issue employee stock options for retention
Step-by-Step Incorporation Process
- Obtain DSC (Digital Signature Certificate): For proposed directors
- Apply for DIN (Director Identification Number): Through SPICe+ form
- Name Reservation: RUN (Reserve Unique Name) or SPICe+
- File SPICe+ Form: Single integrated incorporation form
- Draft MOA & AOA: Memorandum and Articles of Association
- Pay Fees: Based on authorized capital
- Submit to MCA: Online filing on MCA portal
- Receive COI: Certificate of Incorporation with PAN and TAN
- Open Bank Account: In company's name
- GST Registration: If applicable
Documents Required
- PAN and Aadhaar of all directors
- DSC of directors
- Registered office address proof
- Rental agreement/NOC from landlord
- Utility bill (not older than 2 months)
- Consent of directors (Form DIR-2)
- Proof of registered office
Annual Compliance Requirements
- Board Meetings: Minimum 4 per year (gap not over 120 days)
- Annual General Meeting (AGM): Within 6 months of year end
- Filing AOC-4: Financial statements within 30 days of AGM
- Filing MGT-7: Annual return within 60 days of AGM
- Income Tax Return: Due by 31st October
- Audit: Mandatory annual audit by Chartered Accountant
- Director KYC: DIR-3 KYC filing annually
Important Note: Non-compliance leads to penalties up to ₹10,000 per day. Directors may be disqualified for continuous default.
Taxation of Private Limited Company
- Tax Rate (Turnover up to ₹400 crore): 25%
- Tax Rate (Turnover above ₹400 crore): 30%
- New Regime (Section 115BAA): 22% (without deductions)
- Surcharge: 7% or 12% based on income
- Health & Education Cess: 4%
- Minimum Alternate Tax (MAT): 15%
- Dividend Distribution: Taxed in hands of shareholders (new regime)
Startup Recognition Benefits
DPIIT-recognized startups get: Tax holiday for 3 years, tax exemption on investments above fair value, faster patent processing, self-certification for 6 labour laws.