What is private limited Company

Section 3(1) (iii) defines a private company as one which:-

(a) has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as may be prescribed;and (b) by its Articles Association:   1. restricts the right of transfer of its share; 2. limits the number of its members to 50 which will not include:-   A. members who are employees of the company; and B. members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees; 3. prohibits any invitation to the public to subscribe for any shares or debentures of the company; and 4. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

This goes to say that a private company, in addition to the earlier conditions, shall have a minimum paid-up share capital of Rupees One Lakh or such higher capital as may be prescribed and its Articles shall prohibit invitation or acceptance of deposits from persons other than its members, directors or their relatives. In case of such companies, public interest is not involved. The basic characteristics of a private company in terms of section 3(1)(iii) of the Act do not get altered just because it is a subsidiary of a public company in view of the fiction in terms of section 3(1)(iv)(c) of the Act that it is a public company. May be it is a public company in relation to other provisions of the Act but not with reference to its basic characteristics. In terms of that section, a company is a private company when its articles restrict the right of transfer of shares, restrict its membership to 50 (other than employees shareholders) and prohibits invitation to public to subscribe to its shares. Therefore, all the provisions in the articles to maintain the basic characteristics of a private company in terms of that section is restriction on the right to transfer and the same will apply even if a private company is a subsidiary of a public company.