Private Limited Company

A Private Limited Company is held by a few individuals privately, having a separate legal entity. This type of entity does not permit the shareholders to trade their shares publically. It restricts its number of shares to fifty. The shareholders cannot sell their shares without the approval of other shareholders. It is a Company which restricts the right of its members to transfer its shares and it does not send invitation to the public for subscription of its shares. To incorporate a Private Limited Company, a minimum of two members are required. However, the maximum number of members can reach up to two hundred [maximum number limited to fifty as per the Companies Act, 1956 (“1956 Act”)]. Further, a Private Limited Company must have a minimum of two Directors and can have a maximum of fifteen Directors. A minimum authorized capital (paid up share capital) of Rs.1,00,000/- (One Lakh) is required for forming a Private Company in India, however, there is no upper limit. 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. Such liability of the members or shareholders can be limited by Shares or by Guarantee.

For a Company limited by shares, the liability of its members is limited by the Memorandum of Association to the nominal amount of his/her share or so much which remains unpaid. The shareholders cannot be held liable or asked to pay more than his/her share capital invested in the Company. In a Private Limited Company, limited by Guarantee, the liability of its members is limited to the amount of liability undertaken by each of the members in the Memorandum of Association. Further, the guarantee of the members in such Companies can be called for only in the case of winding up of the Company. When the Company is a going concern, the guarantee of the members of such Companies cannot be revoked.