Why is the Private Limited Company the best option for start-ups?

In order to execute the idea into a long-term business, choosing the right form of business is important. For start-ups, Private Limited Company is the best option for the following reasons:

• Limited legal compliances
• No minimum capital contribution
• Need only 2 directors and shareholders (both can be the same person)
• Funding can be raised
• Limited liability of the members

Who can become a director in a Private Limited Company?

Any individual or organisation or even an NRI/foreign nationals can become a director in an Indian Private Limited Company. Here are the conditions to become a director in an Indian private company:

• Director must be a natural person
• He must be over the age of 18 years
• He requires a Director Identification Number (DIN)

How long is the registration valid for Private Limited Company in India?

The private limited company formation comes into existence on issuing of incorporation certificate. A company remains active even though all the shareholders and directors of the pvt ltd company may be changed unless it is wound up either voluntarily or by order of the Court/ NCLT. Also, the Company may be struck off from the register of the ROC if:

• The Company has not commenced business within a period of 1 year from the date of incorporation, or
• The Company has not complied with the Annual Filing Compliance In such a case, the company will be liable to be struck off from the Register of the ROC after a period of time and the Director of such a company will be held in default.

Is there a limit on Shareholders in a Private Limited Company?

A minimum of 2 Shareholders is required for incorporation of Pvt Ltd Company. However, a private company can have a maximum of 200 Shareholders.

Can I become a director in a Private Limited Company if I am already in employment?

Yes, there is no such legal constraint in the Companies Act if not restricted by the employment agreement. All you need to do is check your employment agreement because it may limit you from becoming a director in other company simultaneously.

Does one have to present physically to incorporate a private company?

No, the whole pvt ltd company incorporation process is online. You can send the scanned copy of all the required incorporation documents via e-mail. All the forms and documents are filed electronically and even signed digitally.

Is foreign direct investment allowed in private limited company?

Yes, FDI (Foreign Direct Investment) is allowed in a private limited company as this form of business entity is easy to raise funds. FDI (Foreign Direct Investment) is allowed in private limited companies for non-residents through automatic or approval route.

What is the limit for Directors in a Private Limited Company?

A minimum of 2 Directors are required for incorporation of Pvt Ltd Company, one of the said Director shall be a resident in India, i.e. should be in India for a period of 182 days or more in the previous financial year. However, a private company can have a maximum of 15 Directors.

How to choose a name for Private Limited Company to avoid rejection?

The company name should be selected with utmost care. The rules for selecting a company are:

• The name should be ended with the words 'Private Limited' which are mandated by law.
• The name must be unique.
• Follow the naming guidelines for better chances of approval.
• Name should be suggestive of the company business.

Can a Foreign Company incorporate a Private Company?

As per the Companies Act 2013, there is no minimum requirement for Paid-up Share capital. However, each shareholder should subscribe to a minimum one share.

What are the mandatory compliances for a Private Limited Company?

The common mandatory compliances are:

• Appointment of auditor
• Statutory audit of accounts
• Filing of annual return
• Filing of financial statements
• Holding Annual General Meeting (AGM)
• Prepare directors' report

Can a Private Limited Company register on residential address?

You don't need a proper office address to incorporate a company. You can register your residential address as a registered office address of your business with MCA (Ministry of Corporate Affairs) for which some address proof along with the NOC (No Objection Certificate) has to be filed with the prescribed form.

Can an NRI allowed to incorporate a Private Limited Company in India?

NRIs only allowed to incorporate limited companies in India and the private limited company is ideal for NRIs. Also, there is no requirement to obtain the prior approval from the government or RBI. But, in order to register a private company at least one director must be a resident of India.

Which type of business entity is ideal for medium and large sized businesses?

Private limited company is an ideal form of business entity for majority of medium and large sized businesses as it offers advantages from limited liability protection to easy transferability. But it is not suitable for small businesses.

Can a private limited company be converted into and other type of business entity?

Yes, conversion of private limited company into a public company or one person company or limited liability partnership is possible. But a private limited company cannot be converted into a traditional partnership or sole proprietorship.