A
private company enjoys the following privileges
and exemptions:
A
private company enjoys the following privileges
and exemptions:
Private Company means a company which by its articles of
association: -
Restricts the right of members to transfer its shares- Limits the number of its members to fifty. In determining this number of 50, employee- members and ex-employee members are not to be considered.
Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company. A private company, by its articles must prohibit any invitation or acceptance of deposits from persons other than its members, directors or their friends & relatives. If a private company contravenes any of the aforesaid provisions, it ceases to be private company and loses all the exemptions and privileges which a private company is entitled.
A private company enjoys the following privileges and exemptions:
* Minimum number is members is 2 (7 in case of public companies)
* Prohibition of allotment of the shares or debentures in certain
cases unless statement in lieu of prospectus has been delivered to the Registrar of Companies does not apply.
* Restriction contained in Section 81 related to the rights issues of
share capital does not apply. A special resolution to issue shares to
non-members is not required in case of a private company.
* Restriction contained in Section 149 on commencement of
business by a company does not apply.
* A private company does not need a separate certificate of
commencement of business.
* Provisions of Section 165 relating to statutory meeting and
submission of statutory report do not apply.
* One (if 7 or less members are present) or two members (if more than 7 members are present) present in person at a meeting of the company can demand a poll.
* In case of a private company, which is not a subsidiary of a public limited company or in the case of a private company, of which the entire paid up share capital is held by the one or more body corporates, incorporated outside India, no person,other than the member of the company concerned, shall be entitled to inspect or obtain the copies of profit and loss account of that company.
* Minimum number of directors is only two. (3 in case of a public company) Advantages of a Private Ltd Co.: The liability of the shareholders is restricted to the amount unpaid on the shares held by them, no matter how large the debts of the Co.Of course, if any shareholder or Director is a personal guarantor, then he is liable to the extent of the guarantee. It is a legal person by a fiction of law and can even hold property in its own name. The shareholders are not the owners of the property of the company. The company is the owner. If at some stage the business is to be sold, all that is required is to sell the shares of the company to the buyer after getting a proper valuation.
The no. of shareholders must be at least 2 and maximum 50 excluding employees holding shares and former employees who were shareholders when employed. Only a minimum of 2 Directors are required. They will run the day-to-day business of the firm and the shareholders cannot interfere except by means of Resolutions passed at General Meetings. A dissatisfied shareholder cannot destroy the company as easily as a dissatisfied partner can do to a Partnership firm. Of course, such a shareholder does have the means to create trouble but it is not easy for one person to have a company wound up. If the company has to borrow money, the banks are more ready to advance funds. This of course will depend upon the financial position of the company. Disadvantages of a Private Ltd Co.: The formalities for incorporation are complicated and involve preparation of lengthy documents such as Memorandum of Association and Articles of Association, etc. Numerous returns have to be filed with the Registrar of Companies every year.
In addition to the audited Profit and Loss Account and Balance Sheet. Also numerous Books and Registers have to be maintained such as the Register of Members, Register of Shareholders, Minutes of Board and General Meetings, etc.
In the event of the company being wound up and the Income tax dues not paid in full, the Directors become personally liable for the arrears of Income tax. If a cheque issued by the company is dishonoured because there is insufficient funds all the Directors are liable to be prosecuted including those who have not taken part in the business of the company. Such Directors may be able to get a discharge after showing the Court that they were not personally responsible.
The term 'paid up capital' is defined in clause 32 Section 2 of the Companies Act and Sec.85-90 deals with types of share capital.
Whether paid up capital includes both paid up equity capital and also preference share capital defined in Sec.85 (and whether the private companies are also bound to follow the distinction in their capital in other words is the non convertible redeemable preference shares considered part of paid up capital of a company?) The term 'paid up capital' is defined in clause 32 Section 2 of the Companies Act and Sec.85-90 deals with types of share capital. Whether paid up capital includes both paid up equity capital and also preference share capital defined in Sec.85 (and whether the private companies are also bound to follow the distinction in their capital in other words is the non convertible redeemable preference shares considered part of paid up capital of a company?)
By Section 2(32) "paid-up capital" is defined as including capital credited as paid-up. Section 85 defines "preference share-capital" and "equity share-capital" The difference in the two is in the rights attached to each class of shares. There is no doubt that paid-up share capital is the total of preference and equity share capital to the extent paid up.
By Section 86 it is provided that there shall be only two kinds of capital,i.e. preference and equity. However, by Section 90(2) it is provided that Sections 85 to 89 do not apply to a private company unless it is a subsidiary of a public company. This means that a private company may have more kinds of capital than the two referred to, in Section 86. However, the paid-up capital of even a private company will be the total capital of the different kinds and non-convertible redeemable preference shares will form part of the paid-up capital. The company secretary is normally responsible for arranging board meetings and general meetings and ensuring there's a proper record of the meeting. You must arrange a boardmeeting if any director asks for one, or if 10 per cent of the members request one - 5 per cent if it has been more than 12 months since the last meeting.
How to conduct a board meeting -
You must give reasonable noticenormally 14 days - to the other directors. You must take formal minutes of the meeting. Once approved, the minutes should be signed by the chairman of the meeting. You must keep the minutes as the official record. Shareholders can ask to see them. Rules surrounding the annual general meeting (AGM) The rules
surrounding AGMs changed on 1 October 2007. Since then, private companies have not been required to hold an AGM. Companies can still hold an AGM if they choose to.
As with other meetings, an AGM must be arranged if any director asks for one with due notice, or if 10 per cent of the members request one - 5 per cent if it has been more than 12 months since the last meeting. A company may also still need to hold one in certain circumstances, for example to dismiss a director or auditor before the end of his term. If the company does hold an AGM: You must send written notice to the directors and shareholders 14 days in advance, unless your company articles state otherwise. An AGM can be held at shorter notice if 90 per cent of members agree. You are no longer required to circulate copies of the company's accounts before an AGM. However, they must be sent to members before they are due to be filed with the registrar of companies. Directors and shareholders can vote on the appointment of directors and auditors to the company (if required). Ordinary resolutions can now be passed by a simple majority and special resolutions require at least 75 per cent of those eligible to vote in favour. You must file at Companies House any extraordinary or special resolutions passed at a meeting.
Private companies deemed to be a public company (by default) Sections 43 and 43 A deal with the private company deemed to be a public company. If a private company makes a default as to complying with the provisions required by law to be fulfilled by it, it is deemed to be a Public company. Some of the omissions of the legal provisions would be: the number of its members may be, or may at any time be reduced, below seven. where, after the commencement of the Companies (Amendment) Act, 1988, a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public, other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal, as the case may be, is first made after such commencement. A private company, which has become a public company by virtue of this section, shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company. If a company makes default in complying with the provisions under this section, the company and every officer of the company, who is in default, shall be punishable with fine, which may extend to five hundred rupees for every day, during which the default continues.
Private Companies need not have rotational directors It is open to a private company which is not a subsidiary of any public company to provide in its articles, the manner of appointment and the vacation of office of all its directors. Thus, it is permissible for such a private company to provide in its articles that none of its directors is liable to retirement by rotation. In the absence of anything to the contrary in the articles of association, however, all the first directors of such a private company, who have been appointed under the articles, may hold office till the directors are appointed in accordance with the provisions of section 255 (2) at the first general meeting, held after incorporation but before the holding of the first annual general meeting.
It was held by Delhi High Court that control of one company over the composition of board of directors of another company does not contravene the provisions of section 255, 256 and 257 because section 255 excludes from its preview cases, which have been otherwise expressly provided for in the Act. Moreover, Section 4(2) is an express provision for appointment of the directors on the board of the subsidiary by a holding company. Section 257 is a mandatory provision and a person''s right cannot be taken away by virtue of any contract to the contrary by the members of the company by passing special resolution or under Articles. Such an article or special resolution is invalid under Section 9 of the
Companies Act, 1956. [Circular no 14 of 74,dated 28-8-1974]. Vide notification No G.S.R. 905 dated 30-7-1981, the Government companies are exempted from the provision of this Section. This Section also does not apply to companies, which are registered under Section 25 of the Act, whose articles provide for election of director by ballot.