A private limited company is a company established by a few individuals privately having a separate legal entity. The liability arrangement in these is that of a limited partnership, wherein the liability of a shareholder extends only up to the number of shares held by them.
Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.
Characteristics of the private limited company
Some of the main features of a private limited company are:
i) No minimum capital required
There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but currently omitted.
ii) Number of Members
A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.
iii) Number of directors
A private limited company must have a minimum of two directors, while the maximum number of directors can be 15.
iv) Limited Liability
The liability of each member or shareholders is limited. It means that if a company faces loss under any circumstances then its shareholders are liable to sell their own assets for payment. The personal, individual assets of the shareholders are not at risk.
v) Perpetual succession
The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. The life of the company keeps on existing forever.
vi) Index of members
A private company does not maintain an index of its members as per the Act. Whereas, a public company must maintain an index of its members.
There is no such need to issue a prospectus in case of a private limited company because such type of company does not invite public to subscribe its company shares.
viii) Minimum subscription
It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
It is mandatory for all the private companies to use the word private limited after its name.
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Note: This Post was last updated on November 25, 2022
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