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What is a Private Limited Company in India Defination, meaning, and Understanding of the term PVT LTD|| The Legal Time

A private limited company is a business that's owned by a small group of people and legally separate from them. It limits their responsibility for any debts the company might have. It's managed by directors chosen by the owners, and it's a way to run a business while protecting personal assets from business losses.

 

In accordance with Section 2 Sub section 68 of the Companies Act 2013-

“Private company” means a 8[company having a minimum paid-up share capital 4[Omitted] as may be prescribed, and which by its articles, —

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,

shall not be included in the number of members; and

(iii) prohibits any invitation to the public to subscribe for any securities of the company;

 

Analysis of the definition of Private limited-

Minimum Paid-up Share Capital for private Limited company: The definition doesn't specify a minimum paid-up share capital, as it mentions "Omitted." This implies that the requirement for a minimum paid-up share capital may vary depending on the regulations in force.

Restriction on Share Transfer on Private Limited Company: A private company restricts the right to transfer its shares. This means that shares cannot be freely traded or sold to anyone outside the company without the consent of existing shareholders or as specified in the company's articles of association.

Limitation on Number of Members on Private Limited Company: The company's articles must limit the number of its members to two hundred, except in the case of a One Person Company. This restricts the size of the ownership base, allowing for tighter control and management within the company.

Treatment of Joint Holders on a Private Limited Company: If two or more persons jointly hold one or more shares in the company, they are considered as a single member for the purposes of determining the number of members.

Exclusion of Certain Persons from Membership Count in a Private Limited Company: Persons who are currently employed by the company or were formerly employed and became members while in that employment are excluded from the count of members. This exclusion helps maintain the private nature of the company by not counting employees or former employees as part of the member limit.

Prohibition on Public Invitation for Securities in a Private Limited Company: The company is prohibited from making any invitation to the public to subscribe for any securities of the company. This means that the company cannot offer its shares or other securities to the general public for purchase

 

FAQ:-

What is a private company according to the Companies Act?

A private company, as defined by the Companies Act, is a company that meets certain criteria regarding its ownership structure, shareholder rights, and fundraising activities.

What are the key characteristics of a private company?

The key characteristics include restrictions on share transfer, a limitation on the number of members, exclusion of certain persons from membership count, and a prohibition on public invitations for securities.

What is the significance of restricting the right to transfer shares in a private company?

Restricting share transfer helps maintain control and stability within the company by ensuring that shares cannot be freely traded or sold to outsiders without the consent of existing shareholders.

How many members can a private company have?

A private company's articles must limit the number of its members to two hundred, except in the case of a One Person Company.

Are joint holders of shares counted as individual members in a private company?

No, if two or more persons jointly hold shares in the company, they are considered as a single member for the purpose of determining the number of members.

Who is excluded from the count of members in a private company?

Persons who are currently employed by the company or were formerly employed and became members while in that employment are excluded from the count of members.

Why are certain persons excluded from the membership count?

Excluding employees or former employees from the membership count helps maintain the private nature of the company and ensures that ownership remains concentrated among a limited group.

Can a private company offer its shares to the public for purchase?

No, a private company is prohibited from making any invitation to the public to subscribe for any securities of the company.

What is the significance of the minimum paid-up share capital requirement?

The requirement for a minimum paid-up share capital ensures that the company has a certain level of financial stability and resources before it can be registered as a private company. However, this requirement may vary depending on regulations.

Are there any exceptions to the restrictions imposed on private companies?

Yes, there are exceptions and variations to these restrictions based on specific regulations and laws in different jurisdictions. It's essential to consult legal professionals or relevant authorities for precise guidance.

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