What is Private Company?

As per section 2(68) of the companies act 2013, a private company has three restrictions in its articles of association (Articles of association or AOA are the basic documents which govern the rules and regulations of the company):
  1. The number of members shall be limited to 200.
  2. The right to transfer the shares shall be restricted. This means that the shares can not be easily transferred. This is to ensure that the limit of maximum members do not cross 200.
  3. The company can not raise money from public by inviting them through prospectus.
So, basically starting a Private company is a better option for those businesses where the capital required is not more and is contributed by selected people (not exceeding 200). The term private here indicates that raising money here is more of a private affair and general public is not involved.
The basic difference between Private Company vis a vis Public Company is number of compliance or approval a Company required. Private Company, obviously as compared to Public Company, has limited number of Approvals and Compliance requirement.

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