# Private Company - Section 2(68)

## Definition

A Private Company is a company which by its Articles:

1. Restricts the right to transfer its shares.

2. Limits the number of members to 200 (except in case of OPC).

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

These are often called the 'three restrictions' of a private company.

## Important Rules About Counting Members

### Joint Holders Treated as One

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

### Who is NOT Counted in the 200 Limit?

Current employees of the company who are members.
Former employees who became members during employment AND continue to be members after employment ceased.

## Minimum Requirements

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

## Visual Summary

```

PRIVATE COMPANY (Section 2(68))

Articles must:

+- Restrict transfer of shares

+- Limit members to 200

+- Prohibit public invitation

Plus:

+- Min 2 members, Min 2 directors

+- Name ends with 'Private Limited'

```

## Why These Restrictions?

Private companies are designed for closely-held businesses (families, small groups). The restrictions:

Keep shareholding within a known circle
Prevent it from becoming a public marketplace for shares

Worked example

### Example 1

Q: ABC Pvt Ltd has 150 shareholders. Of these, 30 are current employees who became members during employment, and 20 are former employees who became members during employment and continue as members. How many members count for the 200 cap?

A: Excluded from count: 30 current employees + 20 qualifying former employees = 50.

Members counted: 150 - 50 = 100 members.

The company is well within the 200 limit.

### Example 2

Q: Husband and wife jointly hold 10 shares in XYZ Pvt Ltd. How many members do they count as?

A: They count as ONE member (joint holders treated as a single member).

⚠️ Common exam mistakes

Counting joint shareholders as multiple members - they count as ONE.
Including current/former employee members in the 200 limit - they are EXCLUDED.
Stating maximum members as 50 (old 1956 Act limit) - the 2013 Act increased it to 200.
Forgetting that the THREE restrictions must be in the Articles of Association, not the Memorandum.

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.

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