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Private Limited Company

Companies incorporated or registered in India are governed by the New Companies Act 2013

Private Limited Company
A Private Limited Company?

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Private Limited Company - An Overview

Companies incorporated or registered in India are governed by the New Companies Act 2013

Shareholders and Directors

  • There is no need to appoint local director to incorporate a company in India.
  • Foreign nationals can incorporate company in India and hold foreign equity to the extent of 100%, which is dependent upon sector in which company will operate and is subject to approval from either Reserve Bank of India (RBI) or Foreign Investment Promotion Board (FIPB)

A Private Limited Company allows owners to subscribe to its shares by paying a share capital fees. On subscribing to shares, the owners/members become shareholders on the company. A Private Limited Company is a separate legal entity both in terms of taxation as well as liability. The personal liability of the shareholders is limited to their share capital. A private limited company can be formed by registering the company name with appropriate Registrar of Companies (ROC). Draft of Memorandum of Association and Article of Association are prepared and signed by the promoters (initial shareholders) of the company. A Private Limited Company can have between 2 to 50 members with minimum share capital of Rs 1,00,000 (one lac). To look after the day to day activities of the company, Directors are appointed by the Shareholders. Minimum two Directors must be appointed to look after the daily affairs of the company. A Private Limited Company has more compliance burden when compared to a Partnership and LLP.

Shareholders of a Private Limited Company can change without affecting the operational or legal standing of the company. Generally Venture Capital investors prefer to invest in businesses that are Private Limited Company since it allows great degree of separation between ownership and operations. It also allows investors to exit the company by selling shares without being liable for company affairs.

Salient Features of Private Limited Company

  • Limited
    LiabilityShareholders enjoy limited liability to the extent of capital invested. Shareholder’s personal assets are protected in the event of the company’s insolvency.
  • Separation of Management & Shareholders
    Management & shareholders are separate. A shareholder can invest the fund in business without managing & employ Professional managers for its Operation. Also Professionals can manage the business without owning any stake in business.
  • Separate Legal Entity
    A company is a Separate legal entity from its Owners and Management in the eyes of law.
  • Perpetual Succession
    Business of the Company will not affect if there is any change in the ownership of the company.
  • Easy Equity Funding
    Startups businesses can easily raise funds from investors on an equity basis.
  • Taxation
    Every Pvt Ltd Company can enjoy tax benefits if meets eligibility criteria.