Private limited company is held by few individuals privately having a separate legal entity. In this, the shareholders cannot trade publicly shares. It restricts its number of shares to 50. 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 doesn’t send the invitation to the public for subscription of its shares. Characteristics of private limited company is mentioned below.
Characteristics of the private limited company
- Members– To start a company, a minimum number of 2 members are required and a maximum number of 200 members as per the provisions of the companies act 2013.
- Limited Liability– 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.
- Perpetual succession– The company keeps on existing in the eyes of law even in the case of death, insolvency, the bankruptcy of any of its members. This leads to the perpetual succession of the company. The life of the company keeps on existing forever.
- Index of members– A private company has a privilege over the public company as they don’t have to keep an index of its members whereas the public company is required to maintain an index of its members.
- A number of directors– When it comes to directors a private company needs to have only two directors. With the existence of 2 directors, a private company can come into operations.
- Paid up capital– It must have a minimum paid-up capital of Rs 1 lakh or such higher amount which may be prescribed from time to time.
- Prospectus– Prospectus is a detailed statement of the company affairs which is issued by a company for its public. However, in the case of a private limited company, there is no such need to issue a prospectus because in this public is not invited to subscribe for the shares of the company.
- Minimum subscription– It is the amount received by the company which is 90% of the shares issued within a certain period of time. If the company is not able to receive 90% of the amount then they cannot commence further business. In the case of a private limited company, shares can be allotted to the public without receiving the minimum subscription.
- Name– It is mandatory for all the private companies to use the word private limited after its name.
Private Limited Companies are also entitled to many exemptions that other types of companies are not generally entitled to. Check out Exemptions Private Limited Companies.
In the case, if any private limited company doesn’t follow any of the above mentioned characteristics, it ceases to be a private company.