A private limited company is a company that is privately held by business entities. The liability of the members of a private limited company is limited to the shares owned by them and shares of a private limited company cannot be freely traded. Private Limited Company registration is the most well known legal structure for businesses in India. It is incorporated under the Companies Act, 2013 and governed by the Ministry of Corporate Affairs (MCA).

Characteristics of Private Limited Company

The private limited company is a preferred business form for a number of reasons, it is a business form that is suited to companies irrespective of the business field in which they are. Below are the main characteristics of the private limited company:

1. Number of Member

To start a company, a minimum number of 2 members are needed and a maximum number of 200 members as per the provisions of the Companies Act, 2013.

2. Limited Liability

The liability of each member or shareholder is limited. It means that if a company bears loss under any circumstances then its shareholders are liable to sell their assets for payment. The personal/individual assets of the shareholder are not at risk. A Nominee Shareholder is the registered owner of shares within a company. A nominee shareholder arrangement is used to keep the real shareholder’s identity confidential.

3. Perpetual succession

The Company continues to exist in the eyes of law even in the case of death, insolvency or bankruptcy of any of its members. This results in the perpetual succession of the company. The life of the company is never-ending.

4. Index of members

A private company has a privilege over the public company as it doesn’t have to prepare an index of its members whereas the public company is required to maintain an index of its members. (If membership exceeds 50, a separate index of members is required)

5. The number of directors

A private company needs to have only two directors. With 2 directors (with at least 1 director being an Indian resident), a private company can come into operations.

6. Authorized capital

A minimum authorized capital of Rs 1 lakh or such a higher amount which may be prescribed from time to time.

7. Prospectus

Prospectus is a detailed statement of the company affairs that is issued by a company to its public. However, there is no need to issue a prospectus in the case of a private limited company as the public is not invited to subscribe for the shares of the company.

8. Minimum subscription

It is the value received by the company which is 90% of the shares issued within a certain period. If the company is not able to receive 90% of the value then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving any minimum subscription.

9. Name

All private companies must use the word private limited after their name.

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