Special Privileges of a Private Company over Public Company

Both private and public companies are regulated by the provisions of the Companies act, 1956. However certain provisions of the Act do not apply to a private company. These are the privileges which a private company enjoys over the public company under the act. They are summarized below:

1) The minimum number of members in a private company can be two only as against seven in a public company.
2) Provisions regarding minimum subscription before allotment of shares do not apply to a private company.
3) A private company need not file a prospectus or a statement in lieu of prospectus with the Registrar
4) Further shares can be issued without passing special resolution obtaining Central Government’s approval and need not be offered other existing members
5) Private companies may issue share capital of such kinds in such forms and with such voting rights as it may think fit. However, its paid up capital shall not be less than rupees one lac.
6) Private company can commence business immediately on incorporation.
7) Private company need not keep an index of members.
8) Private company need not hold statutory meeting or file statutory report.
9) Provisions as to overall maximum managerial remuneration and remuneration to directors do not apply to a private company.
10) Minimum number of directors is only two in a private company.
11) Provisions as to proportion of directors liable to retire by rotation do not apply to a private company.
12) Director’s consent to act as such is not required.
13) Restrictions on appointment of directors as regards their consent and holding qualification shares do not apply to a private company.
14) Government approval to appointment or amendment of provisions relating to managing or whole term or non rotational directors is not required.
15) Director’s contract to take up qualification shares need not be filed with the registrar of companies,.
16) Provisions regarding loans to directors do not apply.
17) Provisions regarding interested directors not to participate or vote in Board’s proceedings do not apply.
18) Provisions requiring government approval fro increasing remuneration of a director or managing director do not apply.
19) Prohibition regarding appointment of a managing director for more than five years at a time does not apply.
20) Restrictions on advancing loans to other companies do not supply
21) Provision relating to transfer of shares not to be registered except on production of instrument of transfer, transfer by legal representative application for transfer and power to refuse registration an appeal against refusal do not apply without prejudice to a power of a private company to enforce its restrictions against the right to transfer the shares of such company.

When private, many lose its privileges?

When it fails to comply with the essential requirements of a private company (Sec 3(1) (iii)) Discussed default complying with the said provisions shall disentitle a private company from the privileges and exemptions it is entitled to. The Companies act shall apply to such a company as if it were not private company (Sec43).

Procedure for converting a private company into public limited company (Sec 44)

Section 44 of the companies act prescribes the following procedures for converting a Private Limited Company into a public Limited Company:

1) Alter the articles of the company’s by special resolution to eliminate restrictions of a private company under Sec 3 (1) (iii) .

2) if the number of members is less than 7, it must be raised at least to 7.

3) If the number of directors is less than three it must be raised at least to three.

On the date of such alterations private company shall cease to exist. It shall become a public company. It shall within 30 days file with the Registrar either a prospectus or statements in lieu of prospectus and the resolution altering the articles.

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