Private Company and Public Company - Meaning, Priviledges and Exemptions, Difference between, Company Law Notes CBCS Pattern

[Meaning of Private and Public Company, Difference between Private Company and Public Company, Priviledges and Exemptions of a Private Company over Public Company]

Private company [Sec.2 (68)]

A private company is normally what the Americans call a ‘close corporation’. According to Sec.2 (68), a private company means a company which has a minimum paid-up capital as may be prescribed, and by its Articles:

a. Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private character of the company.

b. Except in case of one person company, limits the number of its members to 200 not including its employee-members. Joint shareholders shall be counted as one member only.

c. Prohibits any invitation to the public to subscribe for any securities. In other words, a private company shall not make a public issue of its securities.

Public company [Sec. 2(71)]: 

A public company means a company which:

a. is not a private company

b. is a private company which is a subsidiary of a company which is not a private company.

c. has a minimum paid-up capital as may be prescribed by the articles.

Difference between Private Limited Company and Public Limited Company

Basis of Difference

Private Company

Public Company

Number of persons

 

Minimum number of members is 2 and the maximum 200, excluding its present or past employee members.

Minimum number of members is 7 and there is no limit as to maximum numbers.

Issue of Prospectus

Prospectus need not be issued.

Prospectus or a Statement in lieu of Prospectus must be issued for inviting public to subscribe to its shares or debentures.

Transfer of Shares

Transfer of shares is generally restricted by the articles of association of a private limited company.

The shares of a public company are freely transferable.

Number of Directors

A Private Company must have at least two directors.

A Public Company must have at least three directors.

Quorum

The quorum for a meeting is two.

The quorum for a meeting is five.

Name

The word ‘Private Limited’ must be used as a part of the name.

The word ‘Limited’ must be used as a part of the name.

Managerial Remuneration

There is no restriction on managerial remuneration.

Managerial remuneration cannot exceed 11% of the net profits.

Special Privileges and Exemptions of a private company

a)    Members: A Private Company can be formed with only two members.
b)   Minimum subscription is not required.
c)    A private company is not required to issue prospectus.
d)   A private company can commence business immediately after its incorporation.
e)   It need not have an index of members.
f)    It need not required to hold a statutory meeting.
g)   Unless the articles otherwise provide, two members personally present shall form quorum.
h)  A Private Company must have at least two directors. All the directors may be appointed by single resolution.
i)  The directors of a private company need not retire by rotation.
j)  Directors need not file their written consent to act as directors or to take up their qualification shares.
k) For appointment of a new director, a special notice is not required.
l) Directors of a private company can vote on a contract in which they are, interested.
m) A private company is exempted from restrictions regarding managerial remuneration.
n)   No person other than the members of an independent company is entitled to inspect, or obtain copies of the profit and loss account of the company under.
o)   The provision that the written consent of directors should be filed with registrar is not applicable to an independent private company.
p)   An independent private company may by its articles, provide additional disqualification for appointment of directors.
q)   An independent private company may be its articles provide special grounds for vacation of office of a director.
r)     Provision regarding prohibition of loan to director, etc. in not applicable to an independent private company.
s)    The restrictions as to number of companies of which a person may be appointed managing director and prohibition of such appointment for more than five years at a time to not apply to it.
t)     The restructures regarding loans to company's loans to companies under the same management do not apply to it.
u)   The provision prohibiting the subscription purchase or otherwise, the shares of other companies in the same group do not apply to it. 

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