Private Company | Its Privileges and Exemptions

In this article we will discuss the definition of a Private Company which can also be used to describe the features or characteristics of Private Company. We will also discuss the Privileges and Exemptions that a Private Company enjoys in comparison to a Public Company.

Define a private company. State its privileges and exemptions.

Definition of Private Company

According to the Companies (Amendment) Act (2000), a private company is the company which:

1. has a minimum of 2 and maximum of 50 members excluding the employees.
2. restricts the right of members to transfer their shares.
3. does not offer its shares to the general public.
4. does not invite general public to invest deposits in the company.
5. has minimum paid up capital of ₹ 1 lakh.

A private company must use the words, ‘Private limited’ or ‘pvt Ltd.’ After its name. Tata Motors, Citi Bank are examples of private companies.

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Privileges and exemptions of a Private Company

A private company enjoys some special privileges and exemptions which are as follows:

1. Minimum number of members: A private company needs only two members to form unlike public companies that require a minimum of seven members.
2. No Prospectus required: Shares of a private company may be allotted without issuing prospectus.
3. No Certificate for commencement of business: A private company can commence business immediately after obtaining Certificate of Incorporation without waiting for Certificate for Commencement of business. But a public company requires to wait for such certificate to commence business.
4. No Statutory Meeting: A private company is not required to hold any statutory meeting as required by a public company.
5. Further issue of capital: The shares of a private company need not be first offered to the existing shareholders in case of further issue of shares, as is required for public company.
6. Minimum number of Directors: The minimum number of Directors required for a private company are two as against three for a public company.
7. No Index of Members: No Index of members is required to be kept by a private company as is required for a public company.
8. Managerial Remuneration: A private company has no overall limit to managerial remuneration unlike a public company which fixes such overall limits to 11% of net profits.
9. Appointment of Directors by a single resolution: All Directors in a private company can be appointed by one single resolution whereas separate resolution is required for appointment of each Director in a public company.
10. Paid up Capital: A private company can be incorporated with a paid-up capital of ₹ 1 lakh whereas a public company requires ₹ 5 lakh.

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