The 3 Different Types Of Private Limited Companies In India | Ebizfiling

 Introduction 


The Companies Act, 2013 governs the format and regulation of companies in India. There are many types of companies in India and one of them is a Private Limited Company. A Private Limited Company is established when there is a minimum of 2 directors and a maximum of 200 members. A Private Limited Company can be formed in 3 different ways with different levels of responsibility and liability for the members and shareholders. The prime focus on of this blog is to know the three different types of Private Limited Company in India. But first, we will discuss "What is a Private Limited Company?".



 What is a Private Limited Company?  

A company that is controlled and managed by a small group of individuals is known as a Private Limited Company. These businesses are run by private stakeholders. The company is formed when there is a minimum of 2 directors at the time of incorporation.

Features of a Private Limited Company

  1. Limited Liability Protection: All members in a Private Limited company are not responsible for any losses incurred by the company because of the feature of limited liability. The members are only liable for the shares of the company they hold.  

  1. Perpetual succession: When a member of the company vacates his/her seat due to any reason like death, illness, or insolvency or bankruptcy the life of the Private Limited Company exists forever. It happens because of the feature of perpetual succession, which means that the existence of the company in the eyes of the law will not affect in any situation.

  1. Name of the company: One of the main features of a Private Limited Company is that the company should include "Private Limited" at the end of the name of the company.

  1. Restriction of transfer of shares: The members or the company itself are restricted from transferring shares in public. This is why a Private Limited Company never issues a prospectus as a Public Limited Company. A prospectus is for inviting the public to subscribe to shares in the company.

 3 different types of Private Limited Companies 

Following are the 3 types of Private Limited Companies:

  1. Private Company Limited by shares

The liability of members in a company limited by shares is limited by the Memorandum of Association to the set of amount of shares he/she owns or other which remains unpaid.  In other orders, the obligation of a shareholder in a Private Limited Company limited by shares is restricted to the paid-up share capital or any remaining balance. A shareholder cannot be made accountable for more than the amount of the shares he/she has purchased from the company. The ownership of a shareholders is determined by the number of equity shares a shareholder owns.

  1. Private Company limited by guarantee

In a Private Limited Company that is limited by guarantee, the liability of each member is restricted to the amount stated in the Memorandum of Association. The members of a Private Limited Company which are limited by guarantee cannot be held accountable for an amount more than the amount of guarantee they have agreed in the Memorandum of Association. Moreover, the company limited by guarantee can call for the guarantee of the member in case of dissolution or winding-up of the Private Company limited by guarantee. The guarantee of the members in a Company Limited by Guarantee cannot be cancelled the company is still operating. A Private Limited Company which is limited by guarantee is appropriate for clubs, trade groups, societies, and businesses that have the requirement of minimal capital or working capital.

  1. Unlimited Company

Companies termed as unlimited are those in which the liability of the members is unrestricted to any such amount as the above two types of Private Limited Company. Each member of the company is accountable for the entire amount of debts and liability of the company. In the case that an unlimited company is winding up, then the creditors have the right to hold the shareholders liable for the company's debt. An unlimited company is still regarded as a separate legal entity despite the fact that it does provide shareholders with limited liability protection. As a result, the members of an unlimited company cannot be sued separately.

 Conclusion 

We will conclude by saying that even though there are 3 different types of Private Limited Companies, the majority of businesses choose to establish themselves as a company limited by shares. This is because the Private Company limited by shares provides maximum protection to the members of the Private Limited Company in India as members are only accountable for the number of shares they hold. An unlimited company provides more protection to the company than the members. Because the members are held liable for the outstanding debts of the unlimited company.

 

 

 

 

 

 

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