Incorporation of a private company is the earliest
way to do business of an ordinary business by a family or ansmall group of persons because minimum two members are sufficient therein. Private Company is defined in Section
3(1)(iii) of Companies Act. It means such a company which by its internal rules-
a.puts restrictions on transfer of its shares, if any.
b.enlists the number of its members upto 50 wherein the following persons are not include.
1.Such persons who are employees of the com-
2.Such persons who have been the employees
of the company and when they were employ-
ees of the company, at that time also they were
members of the company and even after retirement they are, still members. is
If two or more than two persons in a company jointly take one or more than one share, then they shall be counted as one member for this definition.
c.Restricts inviting the public for its shares and for contribution of its debentures.
For the private company it is necessary to suffix ‘Private Ltd.’ with its name. Thus, we can explain the nature of private company as given below-
1.Restriction on the number of members (minimum 2,maximum 50)
2.Restriction on the transfer of shares.
3.The restrict inviting public for purchasing of shares and debentures.
●Advantages of a Private Company account of death etc. of its members.
●Its entity remains fixed because it is not liquidated on
●Its working procedure is assessed by the memoranamended as desired. dum of association and the articles, which cannot be It is bound within the legal restrictions in rare cases.
●Private company gets mixed advantage of both the having limited liability.
●partnership establishment and the public company
●The business secrets are not known to other persons.
●There is no restriction on the wages of the convenience of the private companies
●Private company and its members are isolated, as such the company and members cannot lodge a claim against each other.
Privileges and Exemptions of a Private Company
Companies Act is applicable fully to the private company also leaving those aspects only which are absolutely restricted. Private company is called incorporated partner on the basis of privileges and exemptions only provided under the Companies Act. It has got privileges of the both, i.e., privacy of the partner and the stability of the corporation. Following are the privileges of the private company-
(1) On account of minimum strength of members, it can be conducted quite smoothly in the family and friendly atmosphere.
(2) Prospectus cannot be released by it. Therefore, it is free from all the conditions of the prospectus. It means that the private company has not to give any other details in lieu of prospectus, allotment of shares-can be made immediately. Business can be done just after incorporation. Certificate from the Registrar is not required for this. Private companies have got special facilities in appointing the directors.Therein the individuals can remain on the post of director for whole life. Rule of retirement is not applicable therein.
(3) Private company is free from compulsion of calling legal meeting and presenting legal report also. A public company can send proposal to its old shareholders only for increasing its capital under Section 81 of the Act, but the private company can allot the shares to the external persons also.
(4) Private company has got special exemption under Section 300 of the Act. In a public company interested director in a subject cannot cast his vote in the conference of the board of directors related to that subject, but in private company he can use his right of voting.
Private company has also got some more special privileges other than the aforesaid privileges-
(1) Forwarding of the director’s acceptance to the
Registrar is not required.
(2) Acceptance of the Central Government for increasing the number of directors is not required.
(3) Directors are not required to take worth shares.
(4) Acceptance of the Central Government for remuneration more than 11% of profit or increase in reward to the directors is not required.
(5) Private company can provide loan or financial
help to the directors.
(6) Central Government cannot prevent any type of change in the board of directors of private company.
(7) Private company is not required to issue notice of 21 days in advance for a general meeting.
(8) There is no restriction regarding selling business of the company, to provide exemptions of loan to the, directors etc.