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What Exactly Is a Private Company? 7 Things You Need To Know

Categories: Blog,  financial tips

If you’re planning to run a business, there are a few things you need to become familiar with, one if understand what a private company is and how it works, here at Car Title Loans California we want to provide you with the information.

A private company is one that is owned privately by a small group of people. The group of members who own the company is called shareholders. They hold a certain number of shares of the company and the profit is shared on the basis of the shares they hold in the company. A minimum of 2 and a maximum of 200 members can make up a private company.

This article is going to introduce you to the basics of a private company with 7 things you need to know. 

1. Why Startups prefer Private Limited Companies

A private limited company offers stability and a lot of growth opportunities which are essential for a startup. Moreover, it has its own distinct legal existence apart from its members. This means it can take up contracts and indulge in legal proceedings under its own name. Its status is not affected even if the management and the members change. 

A private limited company offers a variety of funding options. Lending agencies and banks prefer a private limited company because of the credibility of its particular corporate structure. 

2. Types of Private Companies

There are different types of private companies based on their capital and liability. 

Based On Liability

The liability that the members have towards the company can be limited or unlimited. In companies without shareholding, the MoA of the company provides the amount decided as a liability by way of capital. There are some companies with shareholding in which the liability of the members is restricted to capital that is unpaid on subscribed shares. 

Based On Capital

You can register a private company with or without share capital. The capital clause mentioned in the MoA of the organization provides the kind of company it is on the basis of capital.

Private Company Limited By Shares

Most UK-based private companies are limited by shares. These companies are mostly well suited for commercial purposes. A private company limited by shares is described in the blog post, Uniwide Formations: What is a Private Company Limited by Shares, as a company where the shares are divided amongst the members of the company. In this company, you need at least one shareholder and there is no limit to the maximum number of shareholders.  

One Person Company

A one-person company is registered in the name of a single shareholder. An entrepreneur who does not wish to share the ownership rights usually opts for this type of company. This is also a private limited company. 

3. Characteristics

Members and Directors

The Companies Act 2013 states that a private company must have a minimum of 2 members and a maximum of 200. It is not mandatory to maintain an index of the members of the company. A private company can start its operations with a Board of only two Directors. 

Limited Liability

In case of any loss to the company, the members have to sell their shares and make up for it. Their personal assets are not at risk. The company must use ‘Private Limited’ after its name. 

4. Registration Procedure

There are a number of steps to be followed to register a company. 


  1. You need to apply for DIN (Director Identification Number) and DSC (Digital Signature Certificate)


  1. You must apply for the availability of the name. 


  1. The MOA and the AOA have to be filed for registration. 


  1. The company PAN and TAN must be applied for.  


  1. RoC will issue the certificate of incorporation along with the TAN and PAN.


  1. A current bank account must be opened in the name of the company. 

5. Requirements for Registration

A number of requirements for registering a company are the same as the characteristics of a public company. 



The company needs to have a minimum of 2 and a maximum of 200 members. 


The company should have at least two Directors to be registered. The Directors must have a DIN or a Director Identification Number. 


A company name is made up of three parts; name, private limited company, and the activity. All private companies must add Private Limited Company after the company name. At least 5-6 names must be sent for approval. 

Registered Office Address

Till a company is registered, the owner needs to provide a temporary address to the registrar’s office. Once the registration is done, then the permanent office address must be given to the registrar’s office. This is the address where the company conducts all its affairs and keeps all its documents.

Obtain a Digital Signature Certificate

Since everything has gone digital today, documents are also electronically passed on and shared. For this reason, it is essential for all the directors to get a digital signature certificate. 

Professional Certification

A company hires many professionals like chartered accountants, company secretaries, etc. All these professionals need to file for professional certification at the time of registration. 

6. Documents

A private company needs to maintain many documents. Some of them are:

  • The total amount as shares and a proposed ratio for shareholding.
  • The city name where the office is located.
  • Sale and Ownership deed
  • A brief overview of the company business.
  • Identity and address proof of the Shareholders and Directors.
  • Documents of address proof of the registered office.
  • Email address, passport size photograph, and contact details of the shareholders and directors.

7. Advantages 


The sale and transfer of shares in a private company totally depend on the owner. Usually, the founders, a small group of investors, or the management owns the shares. They cannot be sold in the open market.

Number of Shareholders

A private company can work with a minimum number of two shareholders. This also means that quick decisions can be taken as you don’t need to be involved in a lot of red-tapisms. 

No Stock Market Pressure

Private companies do not have to think about the stock markets and the shareholders’ interference and expectations. Since the pressure of the stock market does not exist, they can concentrate more on long-term earnings and profits.

For people who are just starting out, a private company is a much better option. Since it has its own separate entity, it holds limited liability to its shareholders. Before you venture out to start your own company, it is always advisable to know what exactly you are getting into. You also must be acquainted with the specific laws of the city or state you are living in. 


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