A private limited company is a company established by one or more individuals privately. The shareholders of a private limited company cannot trade their shares publicly. A private limited company cannot issue a prospectus inviting the public to subscribe to its shares. It is the most recommended type of business entity for many small and medium businesses that are managed by a few individuals or are family-owned.
Definition of a Private Limited Company
A private company is a company having a minimum paid-up capital as prescribed and whose articles of association:
- Restricts the right to transfer shares
- Excluding One Person Company (OPC) limits the number of its members to 200
- Restricts any invitation to the public to subscribe to any company securities
However, when two or more members of a private limited company hold one or more shares jointly, they are considered a single member. Further, the following will not be considered as company members:
- Persons who are employees of the company
- Persons who were former employees of the company and also members while in employment and continued to be members after cessation of their employment
Characteristics/ Features of a Private Limited Company
In the case, if any private limited company doesn’t follow any of the below mentioned features, it ceases to be a private company. Here are some of the salient features of a Private Company Limited by Shares (LTD);
A private company needs to have a minimum of 1 member (as in the case of a One-Person Company) for starting its business. However, it cannot have more than 50 members, this is the maximum limit.
- Limited liability
The liability of all members or shareholders of a private limited company is limited. It means that when the company faces a loss under any circumstance, its shareholders will not be liable to sell their personal assets for payment. They will be liable to repay for only the amount of the shares subscribed or the guaranteed amount they have agreed to pay.
- Number of directors
The Act provides that a private limited company must have a minimum of one director, while the maximum number of directors is 15.
- Perpetual succession
The private limited companies keep on continuing forever. Its life or continuity is not affected by the life of its members. These companies are created by law & are also dissolved by it. Death, insolvency, or bankruptcy of any of its members does not affect the life of the business. The business enjoys perpetual succession.
- Minimum share capital
The Corporate Affairs Commission provides for a minimum issued share capital of N100,000 for private companies limited by shares. Minimum share capital is the minimum amount of assets a company must have.
A private limited company name must have the words ‘LIMITED’ or ‘LTD’ after its name. For example, if the company name is ABC, it must write its name as ‘ABC LTD’ in all its official communications and the company registration form.
A prospectus is a detailed statement providing the status of company affairs. A company issues prospectus to the public to subscribe to the company share. However, a private limited company cannot issue a prospectus as it cannot invite the public to subscribe to its shares.
- Index of members
A private company does not have to maintain an index of its members as per the Act. Whereas, a public company must maintain an index of its members.
- Securities of a Private Limited Company
A private company can issue securities to promoters and their relatives, directors, relatives, and employees. However, it is not allowed to issue securities to the public at large.
- Transferability of Shares
The Company members can transfer the shares to other members but are not allowed to transfer the shares to a person who is not a member of such a Company.
Both memorandum of association and the articles of association (MEMART) are required for a company formed in Nigeria. The memorandum of association is the document that sets up the company and the articles of association set out how the company is run, governed, and owned. The articles include the responsibilities and powers of the directors and the means by which the members exert control over the board of directors.
If you are still not sure which one to pick for your business, feel free to reach out to us and our experts will guide you in making the right decision.
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