All You Need to Know About Private Limited Companies – Vakilsearch | Blog

Khushbu T

Aug 9, 2022


2 mins

Did you know the most popular type of business structure chosen in India is the private limited company? For instance, we at Vakilsearch register a new private limited company every 9 minutes. Do you want to know why?

With the start-up revolution in India, we hear the term ‘staying private’ more often than ever before. But what does it mean when a company chooses to stay private? And what are examples of private limited companies in India?

Examples of Private Limited Companies

The companies that run Flipkart, Ola, Snapdeal, Carat Lane, and Zoom Car are all private entities, while those that run Zomato, MakeMyTrip, and Infibeam are among the first Indian internet startups to have gone public.

What is a Private Limited Company?

A private limited company gives its members limited liability, allows equity to be raised easily, and ensures transparency in financials. The minimum requirement of a private limited company is two members, and there can be a maximum of 200 members.

The private limited company has many takers in India, with around 10,000 being registered each month. Registering a private limited company is easy. All you need is a suitable name, at least two directors who must apply for DINs and DSCs, articles and memorandum of association, and a few essential documents. The registration process, if effectively done, takes not more than two weeks.


Advantages of a Private Limited Company

As mentioned earlier, a private limited company comes with enormous advantages. Let us look at a few notable ones:

Separate Legal Entity

What it means is that the members and directors are a part of the company; however, none of their personal assets is at risk. The company can take a loan (borrow capital) under its name. However, none of the members or directors is liable in case the company is unable to repay such a loan.

Easy Transfer of Shares

The shares of the company, if any, can be transferred to any person by the shareholder. Signing away the shares and issuing a share certificate is all that is required.

Higher Borrowing Capacity

The liability of members is very much limited since the company is a separate legal entity. As for the borrowing capacity, a company can issue debentures, either secured or unsecured, accept deposits from outsiders, ask for help from financial sectors and venture capitalists, and can do much more to raise capital.

Why Stay Private?

As the name indicates, private limited companies are not subject to the same scrutiny as their public counterparts. This is because there is no requirement to disclose accounts or publicly announce any corporate actions. And if word gets out of layoffs, for example, there is no impact on the valuation of the company, as the public has not been offered any shares in the company. So sentiment does not drive the share price. This also allows many startups to take the opportunity to make bold claims about their revenue rates and plans.

For small companies looking to grow quickly and make changes constantly, such isolation is very necessary. It allows the organization to be nimble. With the introduction of big venture capital in India, it has become possible for companies to stay private for a very long time (close to a decade, in the case of Flipkart and MuSigma), while even spending heavily.

If you’re looking to start a private limited company and need guidance and legal advice on how to do so, then reach out to our team of experts at Vakilsearch.

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