January 29, 2022


Accounting + Finance Blog

Meaning of private company and key explanations

Private company: meaning and key explanations

Business can be formed in a number of ways. Company is one way to do this. When an entity is formed as a company it can either be a public or private company. In this article, a private company will be discussed. In the next, a public company will be explained.

Definition of a private company

A private company is one that states in its memorandum that it is a private company and whose articles restrict the right to transfer its shares.

In addition, it is an association of two to fifty persons with common interests or profit-making goals and which has the acronym Limited.

Key Explanations

According to the Companies and Allied Matter Act ‘2004, the following are what makes up a company:

It is stated in the memorandum that it is a private company. This means it must have the word Limited attached to its name. Example Tobi and Sons Limited.

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It states in the Articles that it has restricted the right to transfer its shares. The shares issued by the company cannot be sold to the public.

The number of its members are between two and fifty. But employees can also become members of or owners of the company.

In the case where two or more persons hold shares jointly, it will be treated as a single person.

Unless authorised by law, a private company cannot invite the public to deposit money for a fixed period or payable at call whether or not it is bearing interest.

Therefore, private companies cannot be a bank, unless a law allows it. In Nigeria, private companies can be established to operate a Microfinance Bank.


Finally, private companies are small companies. Most startups, for example, Jumia, are private companies but as they get bigger, they are converted to public companies.