Q: Elaborate the company limited by members ?

Ans: Section 2(68) of Companies Act, 2013 defines private companies. According to that, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them. This is the basic criterion that differentiates private companies from public companies.

The Section further says private companies can have a maximum of 200 members (except for One Person Companies). This number does not include present and former employees who are also members. Moreover, more than two persons who own shares jointly are treated as a single member.

This definition had previously prescribed a minimum paid-up share capital of Rs. 1 lakh for private companies, but an amendment in 2005 removed this requirement. Private companies can now have a minimum paid-up capital of any amount.

 These are some features that distinguish private companies from other types of companies:

No minimum capital required: There was a minimum paid-up share capital requirement of Rs. 1 lakh previously, but that is omitted now.

Minimum 2 and maximum 200 members: A private company can have a minimum of just two members (but just one is enough if it a One Person Company), and a maximum of up to 200 members.

Transferability of shares restricted: Private companies cannot freely transfer their shares to the public like public companies. This is why stock exchanges never list private companies.

“Private Limited”: All private companies must include the words “Private Limited” or “Pvt. Ltd.” in their names.

Privileges and exemptions: Since private companies do not freely transfer their shares and involve limited interest by members, the law has granted them several exemptions that public companies do not enjoy.

(71) “public company” means a company which— (a) is not a private company; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed: Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles.

Section 3 of companies act, 2013 

(1) A Company may be formed for any lawful purpose by—

(a) seven or more persons, where the company to be formed is to be a public company ;

(b) two or more persons, where the company to be formed is to be a private company ; or

(c) One Person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act in respect of registration.

As per Section 2(62) of the Company’s Act 2013, a company can be formed with just 1 Director and 1 member. The director and member can be the same person. It is a form of a company where the compliance requirements are lesser than that of a private company.