Private Limited Company – Advantages, Disadvantages and Registration Process

In a Private Limited Company all shares of the company are held privately. The shareholders can operate their business themselves or hire directors to manage the company on their behalf. It is a business entity which is privately held by some shareholders. It limits the owner’s liability to the extent of their shareholding and limits the no. of shareholders to 200. It also restricts shareholders to trade shares publicly. The minimum share capital requirement is Rs. 1 Lakh.

Advantages of forming a Private Limited Company are:

  • Members are well known to each other; however control is in the hands of owners of capital.
  • There is a greater flexibility in the management of affairs and conduct of business.
  • The members have a limited liability
  • It is easier for a private limited company can easily get loans from banks
  • It is a separate legal entity and can sue and be sued in its own name.
  • It can own assets and liabilities in its own name.
  • The liability of the shareholders is limited to their shareholding; their personal assets are not taken to repay the debts of the company.
  • It has a perpetual succession which means that the company will continue to exist in case any member ceases to be a member.
  • As the number of members is limited so the decisions can be taken quickly and promptly.

Disadvantages of forming a Private Limited Company are:

  • It restricts the transferability of shares.
  • The maximum number of members cannot exceed 50


Incorporation process:

Pre-incorporation Requirement

For a Private Limited company it is a mandatory requirement before incorporation to have:

At least 2 Promoters – Promoters can be individual or body corporate

At least 2 Directors – Director can be an individual only.

Mostly, the Private limited companies are required to be incorporated with the use of Spice (Simplified process of incorporation of company) forms only.

Only 3 forms are filed electronically, SPICe form INC- 32, with e-MOA in form INC- 33 and e-AOA in form INC- 34.

Form INC-32 is used for availing 5 different services; Name Reservation, Allotment of Director Identification number (DIN), Incorporation of New Company, Allotment of PAN and Allotment of TAN

While incorporating a Private limited company with more than 7 subscribers, we have to follow the following basic procedure for incorporation:

  1. Apply for Directors Identification Number (DIN) and Digital Signatures
  2. Selection of name for the proposed company.
  3. Filing of required forms on MCA Portal (procedure is mentioned below )
  4. Payment of Fees.
  5. Obtain Certificate of Incorporation.

Forms that are required to be submitted on the MCA portal are:

Form Required For Requirements for filing
DIR-3 Application of DIN Proof of identity and residence of applicant
E-Form INC 1 Getting the name availability (6 names can be proposed) No
E-Form INC 7 Filing of Incorporation documents

1.Memorandum of Association

2. Articles of Association

3. Form INC 8 – Declaration of Professional CA/CS/CMA;

4. Form INC-9 – Affidavit from Subscriber and First Directors;

5. Form No. INC-10 -Specimen Signature and Photographs of every Subscriber;

6. proof of residential address which should not be older than two months;

7. proof of identity;

8. PAN card and

9. Undertaking of non-acceptance of deposits

E-Form DIR 12 Particulars of appointment of directors and the key managerial personnel and the changes among them

DIR -2 – Consent to act as a director

Attachments of DIR-2

Proof of identity and residence

E-Form INC 22 Notice and Verification of situation of Registered Office

1. Proof of registered office address (Conveyance/ Lease deed/ Rent Agreement etc. along with the rent receipts;

2. Copies of the utility bills (proof of evidence of any utility service like telephone, gas ,electricity etc. depicting the address of the premises not older than two months;

3. Proof that the company is permitted to use the address as the registered office of the Company (i.e. NOC from the owner)

Before the introduction of SPICe forms, the process of incorporation of a Private LimitedCompany took around 21-30 days but now the process has been reduced to 2-3 days only.


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