# Section 2(68) — Private Company

## 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.

## Three Essential Characteristics (Articles MUST contain)

#	Restriction	Effect
1	Restricts the right to transfer shares	Shares cannot be freely transferred — usually subject to Board approval or right of first refusal to existing members
2	Limits the number of members to 200	(Excluding OPC, which has only 1 member)
3	Prohibits invitation to the public to subscribe to securities	Cannot issue prospectus or do IPO

## Rules for Counting the 200 Members

### Persons EXCLUDED from the count of 200:

1. Present employees of the company who are members (shareholders).

2. Former employees who became members while in employment and continue as members after employment ceased.

### Joint Holders Rule:

If two or more persons hold shares jointly, they are counted as ONE single member.

## Minimum Paid-up Capital

Originally, the Act prescribed minimum paid-up capital of ₹1 lakh for a private company.
The Companies (Amendment) Act, 2015 removed this requirement.
Currently, NO minimum paid-up capital is prescribed for a private company.

## Naming Requirement

Name must end with the words 'Private Limited' (or 'Pvt. Ltd.').

Worked example

### Example 1

Example 1 — Counting members: ABC Pvt. Ltd. has 195 shareholders. Of these, 10 are current employees who hold shares under ESOP, and 5 are former employees who acquired shares during employment and have continued to hold them. Are they within the 200-member limit? Count = 195 - 10 - 5 = 180. Yes, they are well within the limit and can admit 20 more non-employee members.

### Example 2

Example 2 — Joint holders: Mr. A, Mr. B and Mr. C jointly hold 100 shares in XYZ Pvt. Ltd. For the 200-member ceiling, they are counted as ONE member, not three.

### Example 3

Example 3 — Effect of breach: A private company allows free transfer of its shares without Board approval — this violates the first restriction. The company would cease to qualify as a 'private company' and is exposed to action by the ROC. The Articles must always contain all three restrictions.

⚠️ Common exam mistakes

Including current employees who are members in the 200-member count — they are expressly excluded.
Counting joint holders separately — they are treated as ONE member.
Stating that a private company must have minimum paid-up capital of ₹1 lakh — this was removed in 2015.
Saying a private company can issue a prospectus — it cannot. It is prohibited from inviting the public to subscribe.
Forgetting that an OPC is exempt from the 200-member ceiling (it has only 1 member by definition).

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

Section 2(68): '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.

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Section 2(68) Private Company

Worked example

⚠️ Common exam mistakes