Small businesses can be easily run with a sole proprietorship or a partnership firm, but if the business is big or the business is growing, then we need more resources, and as the business grows, the risk also increases. To solve this problem, the concept of a Private Limited Company was established. In India, the Companies Act, 2013, governs the Private Limited Companies.
A private limited company is a privately owned company formed for private entities who want to run the business privately. The transfer of shares is restricted, and no one can easily become its member, making it private. For the transfer of shares, the completion of documents and approval of the board of directors are required.
To register a business as a private limited company, various conditions need to be fulfilled, such as the number of members, the number of directors, legal documents, etc., which are prescribed by law, and after registration, various other formalities need to be completed. Failure to fulfill the conditions may result in rejection of the application, fines, winding up of the company, etc.
Table of Contents
What is a Private Limited Company?
A private limited company is a type of company and a business form that is registered under the Companies Act. In India, it is registered under the Companies Act, 2013, which describes all the provisions of a company from incorporation to winding up. It is a private company with private ownership and requires at least two members (shareholders) and two directors for its formation.
According to section 2(68) of the Companies Act, 2013 – “private company means a company which restricts the right to transfer its shares and, except in the case of a one person company, limits the number of its members to two hundred and prohibits any invitation to the public to subscribe for any securities of the company.”
The maximum limit for members and directors is prescribed in a private limited company; the maximum limit for members is 200, and the maximum limit for directors is 15, but the limit of directors can be increased by passing a special resolution. It is mandatory to appoint a statutory auditor who audits the accounts of the business, and the auditor is appointed as per the provisions given under the law.
When the business is registered as a private limited company it gets separate legal identity which distinguishes it from its owner and creates a unique artificial person which enables the business to own property in its name, file suit in its name, have perpetual succession etc. and the member gets limited liability facility which protects the member from unlimited liability but this is not applicable if the company is an unlimited company.
| Minimum Number of Members | 2 |
| Maximum Number of Members | 200 |
| Perpetual Succession | Yes |
| Separate Legal Entity | Yes |
| Limited Liability | Yes |
| Ability to Sue | Yes |
| Transferability of Shares | No |
| Capacity of Ownership | Yes |
| Minimum Number of Directors | 2 |
| Maximum Number of Directors | 15 |
| Public or Private | Private |
| Name suffix | Private Limited or Pvt. Ltd. |
Features of Private Limited Company
Following are the features of Private Limited Company:
1. Members and Directors:
A private limited company can have a minimum of 2 members and 2 directors and a maximum of 200 members and 15 directors. It is mandatory that the number of directors should neither be less than nor more than the prescribed limit; however, the limit of directors can be increased by passing a special resolution. Note: Any member of the company is eligible to become a director.
| Particulars | Minimum Limit | Maximum Limit |
| Members | 2 | 200 |
| Directors | 2 | 15 |
2. Separate Legal Entity:
When a business is registered as a private limited company, the business gets a separate legal identity in the eyes of the law, which differentiates it from its members, and the business enjoys artificial personhood, but being an artificial person, it appoints natural persons to carry out the operations. The separate legal entity empowers the business to do various things in its own name.
3. Limited Liability:
Members of a private limited company enjoy limited liability facilities. Under limited liability, the member is liable only to the extent of his shares or guarantee, but if the company is unlimited, this facility is not provided, and the liability of the member becomes unlimited. Note: Even if the corporate veil is lifted and the member is found liable, the liability of the member remains unlimited.
4. Perpetual Succession:
Perpetual succession means continuity, according to which members come and go, but the company continues. The company does not come to an end unless it is wound up. This feature ensures continuity of business so that the coming and going of members does not affect the existence of the company, and this feature is possible due to a separate legal entity
5. Ability to Sue:
When the business is registered under the Companies Act, the business gets a separate legal identity under the law under which the company can sue anyone in its name. In simple language, being a separate legal entity, the business and its owner are two different persons, so all the activity is done in the name of the company.
6. Capacity of Ownership:
Businesses registered as a Private Limited Company enjoy the capacity of ownership, this is possible due to the separate legal identity, as it makes the business an artificial legal person, which is eligible to hold any asset in its name, and this right is granted by the law.
7. Name:
A Private Limited Company is required to use name suffix after its name like Private Limited or Pvt. Ltd. For example, if a company name is XYZ, then after using name suffix it will be XYZ Private Limited or XYZ Pvt. Ltd. Note: Name suffix is mandatory for all, not using it can lead to penalty, but exceptions apply.
8. Transferability of Shares:
Transfer of shares in a private limited company is restricted; only a public limited company gets the benefit of transfer of shares. However, a private limited company can also transfer its shares with the approval of the board of directors, but not in the open market. In this, no one can buy the shares of the company without approval.
Read Also:
- What is the Company? Meaning, Features and More.
- Advantages and Disadvantages of the Company
- What is a One Person Company? Meaning, Features, and More.
- What is a Public Limited Company? Meaning, Features and More.
- Types of Companies under the Companies Act, 2013
- Corporate Veil Theory
- Incorporation of a Company: Meaning, Procedure, Advantages and Disadvantages, etc.
QNA/FAQ
Q1. What is a private limited company?
Ans: A private limited company is a type of company and a business form that is registered under the Companies Act.
Q2. What is the minimum and maximum number limit of members?
Ans: The minimum number of members is 2, and the maximum number is 200.
Q3. Why was a private limited company introduced?
Ans: A private limited company was introduced so that the business could be operated and controlled privately with only registered members.
Q4. What is the minimum and maximum number limit of directors?
Ans: The minimum number of directors is 2, and the maximum number is 15.
Q5. Write the features of a private limited company.
Ans: Following are the features of a private limited company:
1. A minimum of two members is required.
2. A minimum of two directors is required.
3. The business enjoys a separate legal identity.
4. The members enjoy a limited liability facility.
5. The business enjoys perpetual succession.
6. The business is eligible to sue in its own name.
7. The business enjoys proprietary capacity.
8. The business is required to use the name suffix.
9. The transferability of shares is restricted.
