What are the special privileges and exceptions enjoyed by the private company under the Companies Act, 2013

Special Privileges exception obligation disadvantages

What are the special privileges and exceptions enjoyed by the private company under the Companies Act, 2013? Also discuss its obligations or disadvantages.

Ans. Privileges and Exemptions of a Private Company— The” Privileges and exemptions available to a private company are in fact nothing but its advantages over a public company. They are as follows-

1. Only two members are sufficient to form a private company.

2. The provisions of S.39 as to minimum subscription do not apply to a private company. It can therefore, commence; allotment of shares irrespective of the number of shares subscribed.

3. Since a private company is restrained from inviting capital from the public, it is not required to file a prospectus or statement in lieu of prospectus to the public.

4. It need not offer preference shares to the existing shareholders.

5. It may commence business immediately after incorporation.

6. A private company is not required to call a statutory meeting or file a statutory report.

7. Ills free to issue any kind of shares and allow disproportionate voting rights to its share holders.

8. S.149(A) provides that a private company may have only two minimum number of directors.

9. A private company may appoint one two or more directors by a single resolution and the directors need not file their consent to act or take up qualification shares prior to their appointment.

10. A special notice of 14 days as required by Section 161 of the Act for appointment of new directors is not necessary in case of a private company provided it is not a subsidiary of a public company.

11. The director can freely vote on matters relating to contracts in which, they have an interest.

12. Even one or two members may demand a poll in case of a private company.

13. The copies of profit and loss account filed by a private company wills the registrar are not open to inspection by non-members.

14. The directors, of a private company need not retire by rotation and the restrictions on appointment or advertisements of directors do not apply to a private company.

15. There are no restrictions oh the appointment or re-appointment of managing director and also there is no maximum limit for managerial remuneration in a private company. It must, however, be noted that many of the concessions listed above, are not available to private companies which are subsidiaries of public companies. But a company which is-purely a private company i.e., not a subsidiary of a public limited company or not a deemed public company is exempt from certain provisions of the Act.

Obligations or disadvantages of a Private Company

Despite the various advantages and privileges of a private company, there are certain disadvantages of such a company. Some of them are :—

1. It cannot issue share warrants payable to bearer.

2. Section 92 of the Companies Act, 2013 requires a private company to file its annual list of members and summary with the Registrar. The Section further requires such a company to send with this list a certificate stating that the company has not, since the date of last return, issued any invitation to public to subscribe to its shares or debentures.

3. A member of a private company cannot appoint more than one proxy to attend and vote in the company’s meeting.

4. A private company is required to send a certificate to the Registrar stating that its annual turnover in the preceding three years never reached rupees one crore or more ; that it did not hold 25% or more of paid-up share capital of one or more public companies; and that since its last general meeting no body corporate has held 25% or more of its paid up share capital.

A private company which violates any of the three compulsory provisions contained in the Companies Act, 2013 of the Act, relating to articles, it shall cease to be a private company forthwith and would be treated as if it were not a private company for the purposes of application of the Act. Thus in such cases, if the number of members falls below seyen, it can be ordered to be wound up by the Tribunal under Section 271 of the Companies Act, 2013 and a petition for its winding up can be presented by the contributories.