As per the Companies Act, a private company is defined as one that restricts the right to transfer its shares, limits the number of its members to 200 (excluding employees and former employees who were members while employed), and has a minimum paid-up capital as prescribed.
Detailed Explanation
Section 2(68) of the Companies Act, 2013, provides the definition of a private company. Let's break down the key components:
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Restriction on Share Transfer: A crucial characteristic is that the company's articles of association prevent shareholders from freely transferring their shares to anyone. This control is a fundamental aspect of maintaining the company's closely-held nature.
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Limit on Number of Members: The Act limits the number of members to 200. However, there are exclusions to this limit:
- Present and past employees who were/are members of the company are not counted for the purpose of determining whether the limit has been breached.
- If two or more persons hold shares jointly, they are treated as a single member.
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Minimum Paid-Up Capital: The section mentions a minimum paid-up capital of ₹1 lakh or such higher paid-up capital as may be prescribed. However, the requirement of minimum paid-up capital has been omitted vide Notification No. G.S.R. 583(E). dated 5th June, 2015. Therefore, currently, there is no minimum paid-up capital requirement for private companies.
Summary
In essence, a private company is a closely-held entity with restrictions on share transfers and a limit on the number of members, operating without any prescribed minimum paid-up capital requirement.
