Company Formation India

Chartered Accountant

Private Company Formation

Section 3(1) (iii) defines a private company as one which — a private company is a company which has a minimum paid up capital of one lakh rupees or such higher paid-up capital as may be prescribed, and by its articles:

• restricts the right of transfer of its share.
• limits the number of its members to 50 (exclusive of past and present employees);.
• prohibits any invitation to the public to subscribe for any shares or debentures of the company; and Also, the minimum number of members in a private company is two, and such a company must have the words “Pvt Ltd” as the last part of its name.

If a company is a private company, all that information remains proprietary. The reason is that the company does not need to divulge that information because it has little ability to harm investors. While there could be some risk, especially if that company seeks a small business loan, the assessment of that risk is left totally up to the lending institution. Most lending institutions have a strict set of guidelines they go by when lending to a private company.

Just because a private company begins its operation without offering stock does not mean that it never can. If a company decides to go public, it often does so by making an initial public offering. This is the transition from a private to public company. Once a company takes this step, reversing that trend back to a private status is extremely difficult.

Steps to set up a Private Limited Company