Meaning of Private Company
The companies whose shares cannot be traded publicly are termed as Private companies. Shares of these companies are not available for trade openly in the market. Private companies are held & controlled by a few private individuals privately.
These companies have a distinct legal identity. Members of private companies cannot transfer their shares to another person publicly. Members need the consent of other members of the company for selling or transferring their shares in the company.
There is a strict restriction on members for transferability of shares in these companies. Liability of public limited companies is limited to the number of shares held by them.
Features of private companies
Number of Members
There is a requirement of certain number of minimum members for starting a private company. Also, there is a limit to the maximum number of members in a private company. A private company need to have a minimum of 2 members for starting its business.
However, it cannot have more than 200 members, this is the maximum limit.
Member’s liability is limited
Members of private limited companies enjoy limited liability in the business. The liability of its companies is limited to the number of shares held by them. Member’s personal assets or property is not liable to pay off the business losses. In case of losses only shareholder share in company assets is liable for payment.
Minimum paid-up capital
Private companies require certain amount of minimum capital for starting its business. These companies are required to have a minimum of Rs. 1 lakh as paid up capital. The limit of paid up capital for these companies is prescribed from time to time.
Members of private limited companies cannot transfer their shares publicly. There is a strict restriction on the transferability of shares in these companies. Shareholders need to discuss & take consent of other shareholders for transfer of shares.
It is important for private companies to use the word “Private Limited or Pvt. Ltd.” in their name. Private companies are mandatory required to use this in their name.
The private limited companies keep on continuing forever. Its life or continuity is not affected by the life of its members. These companies are created by law & are also dissolved by it. Death, insolvency or bankruptcy of any of its members does not affect the life of the business. The business enjoys perpetual succession.
Separate legal entity
Private companies are created by law. These companies have a separate legal entity from its owner& shareholders. It is treated as an artificial person & conducts business in its own name. It has its own name, own seal & owns all property in his own name.