Private Limited Company Registration

The private limited company, now incorporated under the Companies Act, 2013, is the most popular option for a business.

Pros:
  1. Funding - The favourite mule for investors, a pvt ltd company can issue equity shares or preference shares, each having their own advantages and disadvantages. This allows flexibility to an investor in a round of investment, be it angel or venture. Further, at any point, the company can increase the authorised capital and call for a new round of investment, with each round being open to a maximum of 50 new members. Further, the rights and obligations of the shareholders, the promoters / founders, and the investors can be managed through a shareholders agreement that alters the articles of association.
  1. No. of Members - A pvt. ltd. company can have up to 200 shareholders, and 15 directors.
  1. Credibility - A pvt ltd company is universally recognised as a stable and credible entity, vis a viv, the other forms of business entities an individual may opt for. Further, it is a concept that exists across jurisdictions, and one that allows cross border investments as well.
  1. Specified rights and obligations - To a large extent, the rights of the shareholders and the duties of the company to its shareholders are captured in the Companies Act, itself, such as the rights of minority shareholders, information rights, right / obligation to make available audited financial statements, etc.
Cons:
  1. Compliances - Unfortunately, the major con when it comes to a pvt ltd is that relating to compliances - it is estimated that there are about 24 of them a year. Further many actions of the company either involves intimating the registrar of companies (ROC) of the action / changes, or seeking the approval of the ROC.
  1. Fees - The other issue that comes along with increased compliance requirements is that relating to the fees payable every time an intimation to the ROC is made.
  1. Lengthy winding up process - Being a heavily regulated entity, winding up / liquidation of a pvt ltd company is a lengthy and tedious affair, involving appointment of an official liquidator and various compliance procedures.

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