# Private Company — Section 2(68)

## Definition

A private company is a company which, by its articles:

### The Three Restrictions ('R-L-P')

1. Restricts the right to transfer its shares.

2. Limits the number of its members to two hundred (200) — except in case of OPC.

3. Prohibits any invitation to the public to subscribe for any securities of the company.

## Counting Members — Special Rules

### Joint Holders

Where two or more persons hold one or more shares jointly, they are treated as a single member.

### Persons NOT Counted Towards the 200 Limit

1. Present employees of the company who are members.

2. Former employees who were members during employment AND continued to be members after employment ceased.

## Other Requirements for a Private Company

Requirement	Number
Minimum members	2
Maximum members	200
Minimum directors	2
Name must end with	'Private Limited'

## Memory Aid: 'R-L-P'

Restrict transfer
Limit members
Prohibit public subscription

## Quick Check

Always check whether the restriction is in the ARTICLES — not memorandum.

Worked example

### Example 1

Q: XYZ Pvt. Ltd. has 195 shareholders, of whom 10 are current employees holding shares and 15 are former employees who acquired shares during employment and still hold them. Has the company exceeded the maximum members limit?

A: Total members = 195. Excluded = 10 (current employees) + 15 (former employees-then-members) = 25. Members to count = 195 - 25 = 170. Since 170 < 200, the company has NOT exceeded the limit.

### Example 2

Q: State the three articles-based restrictions defining a private company.

A: (i) Restricts the right to transfer shares; (ii) Limits members to 200 (except OPC); (iii) Prohibits any invitation to the public to subscribe for its securities.

⚠️ Common exam mistakes

Saying private company limit is 50 members (that was under the 1956 Act) — it is now 200 under the 2013 Act
Counting present and past employee-members in the 200 limit — they are EXCLUDED
Counting joint holders as multiple members — they count as ONE member
Confusing the prohibition on 'invitation to public' with prohibition on issuing securities — private companies CAN issue securities via private placement
Stating the restrictions are in the memorandum — they must be in the ARTICLES

Bare-Act text Section 2(68) · Companies Act, 2013 · click to expand

'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; (iii) prohibits any invitation to the public to subscribe for any securities of the company.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Private Company [Section 2(68)]

Worked example

⚠️ Common exam mistakes