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CA Foundation · Business Laws · The Companies Act, 2013

Rohan, Sameer and Pooja wish to start a business in which each wants his or her liability limited to the unpaid amount on shares held. They also want to restrict transfer of shares and to have only three members. Which kind of company is the most suitable for this purpose?

A private company limited by shares is most suitable. It restricts share transfer, limits each member's liability to the unpaid amount on shares held, and can be formed with just two members, so a three-member group qualifies easily.

  1. ACompany limited by guarantee
  2. BPrivate company limited by sharesCorrect
  3. CUnlimited company
  4. DPublic company limited by shares

Explanation

A private company limited by shares restricts the right to transfer shares and limits liability to the unpaid amount on shares. A private company needs a minimum of two members, so three members are fine. A public company does not restrict share transfer, and an unlimited company gives no limit on liability.

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