A private limited company is a voluntary association of not less than two and not more than fifty members, whose liability is limited, the transfer of whose shares is limited to its members and who is not allowed to invite the general public to subscribe to its shares or debentures. Its main features are :-
- It has an independent legal existence. The Indian Companies Act,1956 contains the provisions regarding the legal formalities for setting up of a private limited company. Registrars of Companies (ROC) appointed under the Companies Act covering the various States and Union Territories are vested with the primary duty of registering companies floated in the respective states and the Union Territories.
- It is relatively less cumbersome to organise and operate it as it has been exempted from many regulations and restrictions to which a public limited company is subjected to. Some of them are :-
- it need not file a prospectus with the Registrar.
- it need not obtain the Certificate for Commencement of business.
- it need not hold the statutory general meeting nor need it file the statutory report.
- restrictions placed on the directors of the public limited company do not apply to its directors.
- The liability of its members is limited.
- The shares allotted to it's members are also not freely transferable between them. These companies are not allowed to invite public to subscribe to its shares and debentures.
- It enjoys continuity of existence i.e. it continues to exist even if all its members die or desert it.
Hence, a private company is preferred by those who wish to take the advantage of limited liability but at the same time desire to keep control over the business within a limited circle and maintain the privacy of their business.
- Continuity of existence
- Limited liability
- Less legal restrictions
- Shares are not freely transferable
- Not allowed to invite public to subscribe to its shares
- Scope for promotional frauds
- Undemocratic control