Income Tax Filing for AY 2024-25 is now open. File early for quicker refunds. Start Now eFile now

Company Limited By Shares - Definition & Advantages of Company Limited By Shares

What is a company limited by shares?

A company limited by shares is a type of company in which the liability of each shareholder is limited to the amount of their investment.It is also referred to as a joint-stock company. This type of company can be categorized as either a private company or a public company. A private company is one that:

  1. Has a maximum number of fifty shareholders.

  2. Does not invite the public to subscribe to its shares.

  3. Imposes restrictions on the transfer of its shares.

A public company is one that:

  1. Has a minimum number of seven shareholders.

  2. Invites the public to subscribe for its shares.

  3. Does not impose any restrictions on the transfer of its shares.

What are the advantages of a company limited by shares?

There are numerous advantages of a company limited by shares, some of which are as follows:

There are several advantages associated with a company limited by shares:

  1. Limited Liability: Shareholders' liability is limited to their investment in the company. They cannot be held personally responsible for any debts or liabilities beyond the amount they have invested.

  2. Shareholder Control: Shareholders have the authority to elect the board of directors, who make key decisions on behalf of the company. This grants shareholders control and influence over the company's operations.

  3. Financial Stake and Incentives: Shareholders hold a financial stake in the company, providing them with an incentive to ensure the company's success and profitability.

  4. Capital Generation: Companies limited by shares can raise capital by selling shares, allowing them to obtain funds for growth, expansion, and investment opportunities.

  5. Ownership and Management Flexibility: Such companies offer flexibility in terms of ownership and management structure, providing options for diverse ownership arrangements and management models.


What are the requirements for setting up a company limited by shares?

To establish a company limited by shares, certain requirements must be met:

  • Appoint at least one director.

  • Have a registered office address in the relevant jurisdiction.

  • Obtain a company seal.

  • Prepare articles of association, which outline the company's internal regulations.

  • Have at least one shareholder.



In conclusion, a company limited by shares offers the advantage of limited liability for its shareholders, protecting them from personal liability beyond their investment. It provides opportunities for attracting investors and enables the company to raise capital. Setting up a company limited by shares requires meeting specific requirements, such as appointing directors, having a registered office, and preparing necessary documentation. If you are considering starting your own business, forming a company limited by shares may be a favorable option, offering protection and flexibility