QS Study

Private Limited Company

The companies having minimum 2 and maximum 50 members and which are formed by at least two individuals having minimum paid-up capital are called the private limited company. It is a type of privately held small business entity, in which owner liability is limited to their shares, the firm is limited to having 50 or fewer shareholders. The shares allotted to its members are also not freely transferable between them and these companies are not allowed to raise money from the public through open invitation.

Thus, ‘Private Limited Company’ is a type of company that offers limited liability to its shareholders but that places certain restrictions on its ownership. The major ownership restrictions are:

(1) shareholders cannot sell or transfer their shares without offering them first to the other shareholders for purchase.

(2) shareholders cannot offer their shares or debentures to the general public over a stock exchange,

(3) the number of shareholders cannot exceed a fixed figure (commonly 50).

The members of that company are generally restricted to friends and relatives. According to the Companies Act, “the Company is treated as an artificial personality and the liability of the shareholders is confined to their purchased shares only”.

This company can start its business right after getting the “certificate of incorporation” from the registrar. The Companies Act, Said, “Private Limited Company refers to those companies that are statutory-

(i) Having share capital but has provisions in case of the exchange,

(ii) Making provision in Inviting people for subscription of people in the shares or debentures.

(iii) Its members must be restricted to 50 members.

But there is also a provision that if two or more people combination having one or more shares company consequently they are treated as one member according to that definition.