Learn Commerce structures Archives

Learn Commerce Structures III: Private Limited Company

Introduction A Private Limited Company is quite a proven and effective business model. It…

Introduction

A Private Limited Company is quite a proven and effective business model. It involves private ownership, with a limited number of shareholders(a maximum of 200). These are small but successful business entities and are comparatively easy to achieve targets, for young entrepreneurs, after the BCom course.

Although it’s somewhat open to all options, individuals from Commerce courses happen to make better jobs here, mostly due to additional Educational orientations to similar subjects, something other stream novices to this sector, are deprived of.

What Is A Private Limited Company?

As the name suggests, a Private Limited Company is a privately held business entity. It offers limited liability or legal protection to its shareholders. It is an intermediate business stature, shareholders in between a partnership and a collectively owned business company.

A maximum of 200 shareholders can be a part of this institution. According to the definition, the shares of these companies are not publicly sold in Stock Exchange markets and can only be sold to the stakeholders in the business, implying a ground-level limitation in the liquidation of such a company.

Who’s The Owner Of A Private Limited Company?

Private limited companies are owned by one or more individuals (human or corporate), known as “members”. The company’s “shareholders” are those, who’s memberships are limited by shares, while “guarantors” are those limited by guarantees. Beyond the technical terms, members of a company are often referred to as partners.

The companies are majorly owned and managed by the same set of people, where the ones managing the functioning of the system are called Directors, and the ones assisting them are called Secretaries. Together, the executive branch of a company is known as company officers.

What Are The Features Of A Private Limited Company?

A private limited company has the following features:

Membership: As per the provisions of the Companies Act 2013, from a minimum of two to a maximum of 200 members, is what a private limited company is allowed to comprise of.
Limited liability: The liability of the members is limited to the number of shares directly held in their name.
Perpetual succession: Even in case of death, insolvency or bankruptcy of any of its members, the company continues to exist in the eyes of the law, thereby offering ways of forever existence.
Register of members: This database is not mandatory for a private limited company to maintain, unlike any public limited company.
Directors requirement: The company is required to have a minimum of two directors, and then it can remain operational.
Paid-up capital: A private limited company must hold a minimum capital worth rupees one Lac, or such higher amounts, prescribed from time to time.
Prospectus: A private limited company is not required to issue a prospectus either, again, an absolute must in case of any public limited company.
Minimum subscription: There are no such limits on this ground and the company is free to start a business immediately after its formation.

Name: The company must use the word private limited company at the end of its name.

What Are The Merits Of A Private Limited Company?

A private limited company has the following advantages

Flexible Investment: No minimum capital threshold is required for registration.
Separate legal identity: A private limited company is a separate legal identity in the court of law and doesn’t hold overlapping assets and liabilities with the directors.
Free and easy transfer of shares: Shares of the company are transferable by a shareholder to any other person and it is particularly hazel free.
FDI allowed: In a private limited company, 100% foreign direct investment is permissible in certain segments.

What Are The Demerits Of A Private Limited Company?

A private limited company has the following disadvantages:

Publicity restrictions: It arrests the transferability of shares by its articles.
No place in the stock market: Shares of these companies are not entitled to be sold in the Stock Exchange markets.

Is There Any Specific Employer Requirement In A Private Limited Company?

There is no such mandatory requirement, to appoint employees in a private limited company. Though informal, graduates from Commerce Courses, are likely to prioritize, in the selection processes.

What Are The Requirements For Private Limited Company Registration?

A private limited company has the following requirements for registration::

A minimum of two adult persons are required to act as Directors of the company
Minimum of 2 Directors and can have a maximum of 2015 directors.
One of the directors of a private limited company has to be an Indian Citizen and Indian Resident.
The other director(s) can be a Foreign National.
Two persons are required to act as a shareholder of a company

What Are The Documents Required For Registration?

The documents required for a private limited company are:

ID proof: PAN card and passports of Indian and foreign directors, respectively
Address proofs: Ration card or Aadhar card or driver’s license or voter ID
Residence proofs: Bank Statement or electricity bill of the premise
Notarized rental agreement
NOC from the property owner
A copy of the sale deed or property deed (for an owned property)
Digital signature of any one director

What Is The Process Of Registering A Private Limited Company?

Once a name for the company is finalized, the following steps have to be carried out by the applicant:

Step 1: Apply for DSC (Digital Signature Certificate).
Step 2: Apply for the DIN (Director Identification Number)
Step 3: Apply for the name availability.
Step 4: File the EMoa and EAOA with registration form to register the private limited company
Step 5: Apply for the PAN and TAN of the company
Step 6: Certificate of incorporation will be issued by RoC with PAN and TAN
Step 7: Open a current bank account on the company name

Conclusion

Merits and Demerits are the two sides of the same coin, likewise, for a private limited company. It is the most prevalent and recognized business entity, in the current date. This is majorly due to the higher degree of freedom, that it offers in setting it up and functioning.

There’s no time gap between these two, and that’s an incredible opportunity to encourage start-ups. After BCom. Courses, thousands of young minds sketch business plans, not always relevant or effective in the public domain. Whereas the private window offers a more homely than a professional working space, warming up young interns to gear up quickly.

Massive Private Limited Companies have prospered beyond extents, inspiring millions to execute their expertise. Some of these include Flipkart, Ola, Snapdeal, etc. It’s important to have directional thinking and appropriate strategies, to suit the ideas.

Part – iv- Learn Commerce structures IV: Public Limited Company
Part – ii – Learn Commerce Structures II: Proprietorship Firm
Part – i – Learn Commerce Structures: All About Partnership Firms

Learn Commerce Structures II: Proprietorship Firm

A Proprietorship Firm or Sole Proprietorship is the simplest form of business that can…

A Proprietorship Firm or Sole Proprietorship is the simplest form of business that can be. It is one-man business ownership, where the owner is the business and is not a separate legal entity. Being a separate legal entity comes with government regulations which Sole proprietorship is exempt from. These do not even need to be registered. Most small businesses start as sole proprietorships and go on to expand later.

Since the owner and the business are the same entity, in this case, the profits and losses incurred by the business are directly incurred by the owner. This has both positive and negative aspects of the business and its owner. To learn more about Proprietorship Firms, after B.Com course in Ahmedabad is a good choice.

What Makes A Sole Proprietorship?

No Separate Identities: Since the business and the owner are the same, the owner becomes responsible for all transactions and activities carried out by the business.
The Risk Factor: The profits and losses of the business are directly associated with the owner. This means all losses are incurred from the personal wealth of the owner while all profits go to their personal wealth as well.
Legal Formalities: Since no law governs sole proprietorship, there are no procedures to follow when establishing, expanding or closing a Proprietorship Firm.
Liability: Since the business equates to the owner, there is an unlimited financial liability for the owner. The debts and liabilities of the business automatically fall on the owner.
Owner and Business Life-cycle: The events and occurrences in the life of the owner will directly impact the running of the business. An accident, death, imprisonment, etc. will all affect the business operations directly.

Proprietorship Firm Is Not A One Person Company

Legality Of The Business: Unlike a proprietorship firm which is not a legal entity, a One Person Company is a legal entity that is separate from the owner. It is defined and regulated under the Companies Act 2013. Enrolling in the after Commerce course in Ahmedabad will prove helpful in learning more about what makes Sole Proprietorship a unique and also largely preferred business choice for a lot of people.
Liabilities: The liabilities of the business do not directly fall on the owner in the case of a One Person company. The owner has a limited liability towards the only shareholder of his company (Which practically is himself, but not so legally).
Succession: Succession in a Proprietorship Firm depends on declaring a legal nominee. The continuity of the business stays uncompromised only if the nominee is declared in a will. The death of the (only) company member will otherwise simply disrupt the business.
Tax Returns: If the annual turnover crosses the legally specified limit, sole proprietorships need to get their accounts audited. A-One Person Company on the other hand has to file annual returns just like a private limited company.
Change In Nature: An increase in turnover of a One Person Company can lead to it becoming a Private or Public Limited Company. For a Sole Proprietorship, regardless of the profits earned, its status remains as a Sole Proprietorship.

Advantages Of A Sole Proprietorship

Complete Control: Since the owner is directly liable for everything, at all steps and stages of the business, the owner has the complete power to decide on matters.
Confidentiality: Financial data and documents are not required to be published by Sole Proprietorships which maintains the confidentiality of procedures and operations.
Sense Of Achievement: Since the owner is answerable to own self only, all good decisions, advances, and business expansions bring great satisfaction to the self of the owner.

The Advantages Are Only One Side Of The Coin: Disadvantages Of Sole Proprietorship

Unlimited Liability: The aspect of complete control means all losses are solely incurred by the owner. The liabilities continue from the business to the owner. A failing business can take with it the personal wealth of the owner.
Uncertain Lifecycle: The life cycle of a Proprietorship Firm depends directly on the outlook and life events of the owner. A debilitated attitude or the happening of an event with a negative impact can leave the business in the lurch.
Limits to Managerial Abilities: Since the owner is the business, and no other people are a part of it, tasks like managerial work become difficult to pull off for a single person.
Limited Capital: Since there is only so much that an individual can invest from their personal wealth into a business, these businesses also need money to expand. Unfortunately, banks are not actively willing to lend to proprietorships.

The commerce course in Ahmedabad is a great learning opportunity for those planning to venture into the business world. A Sole Proprietorship is often the beginning of what ends up becoming big and beloved brands, products and service providers. Starting on one’s own is always a better idea, a better learning experience.

Part – iv- Learn Commerce structures IV: Public Limited Company
Part – iii – Learn Commerce Structures III: Private Limited Company
Part – i – Learn Commerce Structures: All About Partnership Firms

Tag: Learn Commerce structures