Privileges and Exemptions available to a Private Company

A private company enjoys certain special privileges which are not available to a public company. It is so because in a private company the money is raised from few people and generally they belong to the same family or group or are close friends. Therefore, not much public interest is involved therein. But in case of public companies where the money is raised from general public and the number is quite large, it is necessary to safeguard their interests, hence several restrictions are imposed on public companies.

Following are the special privileges available to a private company:

            (1) A private company can be formed with only two members [s.12 (1)].

            (2) A private company can proceed to allot shares without waiting for the minimum subscription (5.69). The reason is that a private company is not required to offer shares to the public.

            (3) A private company is not required to issue a prospectus. Therefore, it can allot shares without issuing a prospectus or delivering to the Registrar a statement in lieu of prospectus [s.70)3)].

            (4) A private company need not offer further issue of shares to the existing shareholders, I.e., a private company is free to allot new issue to outsiders [s.81(3)].

            (5) A private company can issue any kind of shares and allow disproportionate voting rights since Ss.85 to 89 of the Act are not applicable to it. [s.90(2)].

            (6) A private company can commence business immediately after its incorporation [s.149 {7)].

            (7) It need not have an index of members [s.151 (1)].

            (8) A private company is not required to hold a statutory meeting or to file a statutory report with the registrar of Companies [s.165 (10)].

            (9) Only two members, who are personally present at the meeting, shall form the quorum unless the articles provide for a larger number [s.174 (1)].

            (10) In case of a private company, poll can be demanded by one person present in person or by proxy, if not more than seven persons are present; if the number present is more than seven, two members present in person or by proxy can demand a poll [s.179 (1) (b)].

            (11) A private company need have a minimum of two directors only [s.252             (2)].

            (12) All the directors may be appointed by a single resolution.

            (13)  The directors of a private company need not file their written consent to act as directors or to take up their qualification share (Ss.264 & 266).

            (14) The directors of a private company need not retire by rotation (s.255).

            (15) Section 266 dealing with restrictions on appointment or advertisement of        directors is not applicable to a private company [s.266 (5) (b)].

            (16) Where a new director is to be appointed, a special notice of fourteen days       is required. This provision is not applicable to a private company, unless it is a   subsidiary of a public company [s.257 (2)].

            (17) Directors of a private company can vote on a contract in which they are          interested (s.300).

            (18) A private company is exempted from restrictions regarding managerial            remuneration.

Additional privileges of private companies. In addition to the privileges mentioned above, an independent private company enjoys following additional privileges:

            (1) It can give financial assistance directly or indirectly for purchase or subscription of its own shares.

            (2) The provisions of Ss.85 to 89 as to kinds of share capital (s.85), new issue of share capital (s.86), voting rights (s.87), and termination of disproportionately excessive voting rights in existing companies (s.89), do not apply.

            (3) The provisions of s.108A containing restrictions of more than 25 per cent of the paid up share capital of a company without the previous approval of the Central Government are inapplicable.

            (4) Sections 171 to 186 relating to general meetings are not applicable if it makes its own provisions for them by the Articles.

            (5) No person other than its own member is entitled to inspect, or obtain copies of, the profit and loss account of the company under s.610 (s.220).

            (6) The provision that the written consent of directors should be filed with Registrar is not applicable (s.264).

            (7) It may, by its articles, provide additional disqualifications for appointment of directors [s.274 (3)].

            (8) It may, by its articles, provide special grounds for vacation of office of a director [s.283(3)].

            (9) Provisions regarding prohibition of loan to director, etc., (s.295) is not applicable.

  (10) The restrictions as to the number of companies of which a person may be appointed managing director and prohibition of such appointments for more than five years at a time do no apply to it. (Ss.316, 317).

            (11) The restrictions regarding loans to companies under the same management do not apply to it (s.370).

            (12) The provision, prohibiting the subscription, purchase, or otherwise, the shares of other companies in the same group do not apply to it. (s.372).

Loss of Privileges by a Private Company. Section 43 provides that if a private company contravenes any of the three conditions included in its Articles as per s.3(1) (iii), then it will be treated as if it is a public company and it will then result in loss of privileges and exemptions to which it is normally entitled to.

The provison to s.43 states that if the contravention of any of the three restrictions contained in the articles was accidental, or if the Company Law Board is satisfied that it is just and equitable to grant relief, it may relieve the company from these consequences on the application by the company or any other interested person.