Private Limited Company

A private company is a firm held under private ownership. Private Limited Company is a company formed by two or more persons but not exceeding fifty people it prohibits any invitation to the public to subscribe to its shares and restricts the right of is shareholders to transfer their shares. It is a type of privately held small business entity. This type of business entity limits owner liability to their shares limits the number of shareholders to 50, and restricts shareholders from publicly trading shares. The liability of the members of a private limited company is limited. private limited company (Pvt ltd company) is the most common vehicle to carry on business for an entity intending to make a profit and enjoy the benefits of an incorporated entity, particularly limited liability.

A private limited company is neither listed on the stock exchange nor are they traded. It is privately held by its members only. Private companies may issue stock and have shareholders, but their shares do not trade on public exchanges and are not issued through an initial public offering (IPO). Shares of Private Limited Company cannot be publically traded. As a result, private firms do not need to meet the Securities and Exchange Commission’s (SEC) strict filing requirements for public companies.

Characteristics –

  • Members– To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the Companies Act.
  • 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.
  • 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. This leads to the perpetual succession of the company.
  • Index of members– A private company has a privilege over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
  • A number of directors– When it comes to directors a private company needs to have only two directors.
  • Paid-up capital– It must have a minimum paid-up capital or such higher amount which may be prescribed from time to time.
  • Prospectus– Prospectus is a detailed statement of the company affairs that is issued by a company for its public.
  • 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.
  • Name– It is mandatory for all the private companies to use the word private limited after its name.