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Required minimum number of shareholders for pvt ltd?

rw (Others) (26 Points)

10 June 2013

Where is the required minimum number of shareholders for a private limited company stated by the Indian Government?

I have searched the Companies Act - e.g.

https://www.mca.gov.in/Ministry/pdf/Companies_Act_1956_13jun2011.pdf

but (as far as I can tell) not found any required minimum number of shareholders.

The Companies Act does clearly state a requirement of "at least two directors" (Chapter II, section 252 (2) on page 331) but I am unable to find any statement about the minimum required number of shareholders.

Am I therefore correct in concluding that it is possible for a Private Limited company to have only a single shareholder (e.g. a single individual owning 100% of the company's shares)?

Thanks for your kind help

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7 Replies

CA Jainam Shah (Chartered Accountant) (190 Points)
Replied 10 June 2013

minimum number is 2 and maximum is 50 for private companies

Betcy V (**) (21 Points)
Replied 10 June 2013

Section 12(1) of the Companies Act, 1956 states as under

"Any seven or more persons, or where the company to be formed will be a private company, any two or more persons, associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration, form an incorporated company, with or without limited liability"

Also Section 3(1)(iii) states that

private company" means a company which, by its articles,-

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not including

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company: Provided that where two or more persons hold one or more shares, in a company jointly, they shall, for the purposes of this definition, be treated as a single member;

Hope this clarifies your query.

rw (Others) (26 Points)
Replied 10 June 2013

Thanks Betcy V

Section 12 is titled "MODE OF FORMING INCORPORATED COMPANY" and yes, Section 12(1) does state that at least 2 shareholders are required WHEN REGISTERING a pvt ltd company. Indeed, this is consistent with the govt's answer to Question 7 of its FAQ

https://www.mca.gov.in/MCA21/dca/help/faq_efiling1.html#q7

7. What is the minimum number of subscribers required for registration of a company?

Minimum no. of subscribers for Private Limited Company: Two, for Public Limited Company: Seven and for Producer company: Ten.

But what about AFTER a pvt ltd company has been formed/registered?

Do you know of any published requirement which prevents changing the shareholding pattern of a pvt ltd company so that a single shareholder owns 100% of the shares?

For example: imagine a duly registered pvt ltd company owned by a father and son. What happens if the son were to inherit the father's shares (and thereby own 100% of the company's shares)?

P C Agrawal (Registered independent director Past Chairman of Aurangabad Chapter of ICSI Practicing Company Secretary at Aurangabad) (8229 Points)
Replied 10 June 2013

Minimum number of members required as per the Act (2 in case of private company) has to be maintained throughout the life of the company. The concept of one-man company has not yet been introduced in India. Companies Bill 2012 (which is pending before Parliament) provides for one-man company. This concept will come into effect only after the Bill becomes an Act and is notified by the government.

Thanks

rw (Others) (26 Points)
Replied 10 June 2013

Thanks P C Agrawal

Also, in the 1956 Companies Act, I now see Section 433 (d) which states that a pvt ltd company can be wound-up "if the number of members is reduced, in the case of a public company, below seven, and in the case of a private company, below two"

Romil (Student) (88 Points)
Replied 10 June 2013

Section 45 of the Act is reproduced below:

"45. MEMBERS SEVERALLY LIABLE FOR DEBTS WHERE BUSINESS CARRIED ON WITH FEWER THAN SEVEN, OR IN THE CASE OF A PRIVATE COMPANY, TWO MEMBERS
If at any time the number of members of a company is reduced, in the case of a public company, below seven, or in the case of a private company, below two, and the company carries on business for more than six months while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with fewer than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefor."

Thus, a private ltd's company's liability cannot be limited in case the number of members fall below 2.

ASJAD RIZVI (STUDENT) (22 Points)
Replied 26 August 2018

There is a difference between shareholder and member and co act doesnt specify any minimum limit of shareholder but it specify minimum limit of members. When a company receives incorporation certificate does it instantly get any shareholder? No. It takes time shares are issue , public apply them , then shares are alloted. Between the time of incorporation and allotment of shares there is no shareholder but there are members. So when there are no members we can conclude there can be 0 shareholders and company can survive but there should be atleast 2 members to make a pvt ltd company survive.