KINDS OF COMPANIES IN COMPANY LAW : Statutory companies, chartered companies, registered company, foreign companies, investment companies, one person company, public company, private company etc.
QUESTION: Define a private company and state the special privileges which it enjoys under the Companies Act, 2013?
A private company is a firm held under private ownership. Private companies may issue stock and have shareholders, but their shares do not trade on public exchanges and are not issued through an initial public offering (IPO).
Section 2(68) of the Companies (Amendment) Act, 2015 defines a Private Company as a company which has a minimum paid up capital as may be prescribed, and by its articles:
(i) restricts the rights of its members to transfer of share, (if it has any);
(ii) except in case of one person company, limit the number of its members to two hundred (200), which does not include.
- (a) members who are the employees and members of the company.
- (b) members who, while they were employees of the company, were also it members and continue to be its members after leaving its employment.
Where two or more persons hold one or more shares in a company jointly. They for the purposes of this clause be treated as a single member.
(iii) prohibits any invitation to the public to subscribe for any securities of the company.
FEATURES OF PRIVATE COMPANY
- Private company members cannot freely transfer their shares.
- Private company has minimum number of members-2 and maximum number of members 200.
- It is mandatory to write ‘Pvt. Ltd.’ as suffix with the name of the private company.
- A private company cannot issue an invitation to the public to buy its shares or debentures.
- The shares of the private companies are not traded on the public exchanges.
- Preparation of articles of association is mandatory for private company.
- A private company can commence its business immediately on the receipt of the certificate of incorporation.
- Private company must have at least two directors.
- It is not mandatory for the directors to have qualification shares in the private company.
- It is not necessary for the private company to get the prior permission of Central Government to lend loan to its directors.
SPECIAL PRIVILEGES OF PRIVATE COMPANIES UNDER COMPANIES ACT 2013
The provisions of the Companies Act are equally applicable to private and public companies; but in some cases, the Act provides some privileges and exemptions to private companies. These privileges and exemptions available to a private company are in fact nothing but its advantages over a public company. They are as follows:
PRIVILEGES REGARDING FORMATION OR INCORPORATION: These are as under:
- A private company needs to have only two members (minimum) where the minimum number of members for a public company is seven.
- A private company can allot its shares without receiving the minimum subscription.
- It is not mandatory for a private company to submit its prospectus to the Registrar.
- A private company can commence its business immediately on the receipt of the certificate of incorporation and is not required to have a certificate of commencement of business, which is not mandatory for a public company.
PRIVILEGES REGARDING ISSUE OF SHARES:
- It is not necessary for a private company to offer any new issues of shares to its shareholders-i.e., it may offer such shares to any person it may want.
- It is free to issue any kind of shares and allow disproportionate voting rights shareholders.
PRIVILEGES REGARDING MEETINGS:
- At least two members of a private company must be present at its annual general meeting whereas the number of members is five in case of a Public Company.
- A poll may be taken on a demand made by one member of a private company having the right to vote whereas, in a public company, a poll can only be taken on a demand of at least five members.
PRIVILEGES REGARDING DIRECTORS:
- A private company shall have at least two directors. Whereas, the minimum number of directors for a public company is three.
- A private company may appoint two or more directors by a single resolution and the directors need not file their consent to act or take up qualification shares prior to their appointment.
- A special notice of 14 days as required by Section 161 of the Act for appointment of new directors is not necessary in case of a private company provided. It is not a subsidiary of a public company.
- The directors can freely vote on matters relating to contracts in which they have an interest.
- The directors of a private company need not retire by rotation, and the restrictions on appointment and advertisement of directors do not apply to a private company.
- There are no restrictions on the appointment or re-appointment of managing director and also there is no maximum limit for management remuneration in a private company.
- The copies of Profit and Loss Account filed by a private company with the Registrar are not open to inspection by non-members.
Although the private companies enjoy the special privileges over and above public companies. But if any private company violates the section 2 (68) of companies act 2013 which is relating to the articles of association, the company may lose its privileges.