Private Limited Company is a company incorporated under the Companies Act, 2013, that restricts share transferability, limits its membership to 200, and prohibits public subscription of its securities. Under Indian law, it is defined in Section 2(68) of the Companies Act, 2013, and is the most common form of corporate entity for small and medium businesses.
Legal definition
Section 2(68) of the Companies Act, 2013 provides the statutory definition:
"Private company" means a company having a minimum paid-up share capital as may be prescribed, and which by its articles—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that— (A) persons who are in the employment of the company; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company.
The requirement of minimum paid-up share capital of one lakh rupees was removed by the Companies (Amendment) Act, 2015, effective 29 May 2015. There is now no prescribed minimum capital for incorporation of a private company.
A private company requires a minimum of two directors under Section 149(1)(a) and a minimum of two members under Section 3(1)(b) of the Companies Act, 2013.
How courts have interpreted this term
The foundational principle underlying a private limited company — that it possesses a separate legal personality distinct from its members — was established in the seminal English case and has been consistently applied by Indian courts.
Salomon v. Salomon & Co. Ltd. [1897] AC 22 (HL)
The House of Lords held that a duly incorporated company is a legal entity entirely separate from its shareholders. Even where one person holds virtually all the shares, the company remains a distinct person in law. This principle is the bedrock of Indian company law and is codified in Section 9 of the Companies Act, 2013, which provides that from the date of incorporation, the company becomes a body corporate capable of exercising all functions of an incorporated company and having perpetual succession.
Lee v. Lee's Air Farming Ltd. [1961] AC 12 (Privy Council)
The Privy Council reaffirmed the separate legal entity doctrine, holding that a director could validly contract with a company he solely owned. Indian courts follow this principle, while also applying the doctrine of lifting the corporate veil as an exception in cases involving fraud, tax evasion, or sham transactions.
Types of private limited company
Indian law recognises several sub-categories within the private company framework:
- Regular private limited company (Section 2(68) read with Section 3): The standard form requiring minimum two members and two directors.
- One Person Company (OPC) (Section 2(62)): A private company with only one member, introduced by the Companies Act, 2013, enabling single entrepreneurs to access the benefits of limited liability.
- Small company (Section 2(85)): A private company with paid-up capital not exceeding two crore rupees and turnover not exceeding twenty crore rupees, enjoying relaxed compliance requirements.
- Section 8 company: A private company formed for promoting commerce, art, science, education, social welfare, religion, or charity, which applies its profits towards its objects and prohibits dividend payments.
Why this matters
The private limited company is the most widely adopted corporate structure in India for startups, family businesses, and small-to-medium enterprises. Its core advantage is the principle of limited liability — members are liable only to the extent of the unpaid amount on their shares, and the personal assets of shareholders are shielded from company debts. This feature, combined with separate legal personality and perpetual succession, makes it the preferred vehicle for raising investment, holding property, and conducting business with defined governance.
For entrepreneurs and investors, the three defining restrictions of a private company — share transfer limitations, membership cap, and prohibition on public subscription — are not merely constraints but serve as protective features. The share transfer restriction ensures that ownership remains within a known group, the membership limit preserves its closely-held character, and the prohibition on public subscription distinguishes it from the more heavily regulated public company.
Practitioners should note that despite the removal of the minimum capital requirement in 2015, private companies must comply with annual filing, board meetings, statutory registers, and financial statements. Non-compliance attracts penalties and can lead to striking off from the Register.
Related terms
Broader concepts:
Key components:
Related structures:
Frequently asked questions
What is the minimum capital required to start a private limited company in India?
There is no minimum paid-up share capital requirement for incorporating a private limited company in India. The earlier requirement of one lakh rupees was removed by the Companies (Amendment) Act, 2015. However, the company must have at least one share with a nominal value at the time of incorporation.
How many members and directors does a private limited company need?
A private limited company requires a minimum of two members and a maximum of 200 members (excluding employee-members). It must have a minimum of two directors, of whom at least one must be an Indian resident who has stayed in India for at least 182 days in the preceding calendar year.
Can a private limited company be converted into a public company?
Yes. A private company can be converted into a public company by passing a special resolution to alter its articles of association, removing the three restrictions specified in Section 2(68), and filing the requisite forms with the Registrar of Companies under Section 14 of the Companies Act, 2013.
What is the difference between a private limited company and an LLP?
A private limited company is governed by the Companies Act, 2013, has shareholders and directors as separate roles, and can issue shares to raise equity capital. An LLP is governed by the Limited Liability Partnership Act, 2008, has partners (not shareholders), and cannot raise equity from external investors. Private companies face more extensive compliance requirements but offer greater flexibility for fundraising and ownership structuring.
Can a private limited company issue shares to the public?
No. Section 2(68)(iii) of the Companies Act, 2013 expressly prohibits a private company from making any invitation to the public to subscribe for its securities. A private company can issue shares only through private placement under Section 42, subject to the condition that the offer is not made to more than 200 persons in a financial year.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.