PRIVATE COMPANY ich by its articles: te company means a company wi it es mee not including persons who are in A privat 1.” Restricts the right to transfer 2. Limits the number of its members to 50, jebentures d employment of the company, and. _ aed 3. Prohibits-any invitation to the public to subscribe for the s or redeemable capital of the company: bee Where two or more persons hold one oF mois one in a company “jointly, they shall be treated as a single member.[Sec. 2( Characteristics Sy A private company has the following characteristics: It has some restrictions on the.transfer of shares. »- It can be formed by at least 2 persons.~ The total members must not exceed 50. It cannot invite the public to purchase its shares and debentures. It cannot issue prospectus:to the public. 1. 2. 3. 4. 5. 6. It raises capital by offerings shares to relatives, friends, directors, promoters or existing members. It car be converted into a single member company with approval of the 7. Comission. A private company must add the words (Private) Limited’ at the end of. its 8. name. Transfer of Shares ' The following is procedure of transfer of shares: [Sec. 76] 1. A member of a private company shall inform the board about his intention to sell his shares. 2. The board shall, within 10 days, offer those shares for sale to the existing members. The offer shall: specify the number of shares, price and time of acceptance. 4. Ifthe shares offeréd aan ed are not taken, the board may offer those shares to other 54 Scanned with CamScanner65 Private Company res fares, the member ay Jan those Sha! 5. If the members refuse to buy the sl to any other person. Single Member Company hi ‘A. single any whee ea gle. member company means a cOmF! Y any: [SeC- 2(1)(65) member. The following are rules of a single member compan} 1. A single person may form a single member company: 2. A single member company shall not invite the public to s' shares of the company. A single member company shall have at least 1 director. The sole member shall be the director. The single member may transfer his shares to asingle person- The sole member shall nominate a person who, upon his death, shall transfer the shares to the legal heirs. The company may appoint'a secretary. : a 8. The word “(SMC-Private) Limited’ shall be part of name of every single member company. = 9. The director shall appoint the chief executive. 40. The single member shall have the power to remov' executive or secretary through a. resolution. 41. A’single member company ‘can be converted into a private company. 42. A private company can be converted into. a single member company with the approval of the Commission. ‘ Privileges of Private Company The private company enjoys certain privileges which are not all public companies. These privileges are as follows: 4. Number of Members : be formed with two members. However, @ single A private company can, member company requires only a. single person. [Sec.14] tors 2. Number of Direc! member company shall have o1 only one ubscribe for any oane _ e any director, chief lowed to ne director. A private company. A single shall have two directors. [Sec. 154] 3, Statutory Meeting ” ae d'to hold a statutory meeting or file a pany: is not require! A private com e registrar. [Sec. 131] statutory report with th 4. Prospectus - A private company, IS not ret of shares oF debentures. quired to issue a prospectus before allotment Scanned with CamScanner(Z| Private Compan, 66 a 5. Commencement of Business Pi Pv A private company can start business and orev subaerption (See iy 3. incorporation without fulfilling the requirement of minim 4. 6. Qualification Shares i to purc The directors of a private company are not required to purchase 7 qualification shares. [Sec. 19] 7. - Filing of Annual Returns it i Aprivate company is not required to file annual fr with the registrars] 6. its paid-up capital is less than 1-million rupees. [Sec. 130(5)] 7 8. Financial Assistance ‘to K A private company can give financial assistance to its members to . Purchase its own shares if it is not a subsidiary of a public company. [Sec. 86(2) 9. Interested Director . , In a private company, a’ director having interest in any contract can Participate and vote in board meetings. [Sec. 207(3)] ee 10. Qualification of Auditor " is A private company which is not a subsidiary of a public company is a required to appoint a chartered accountant as auditor. Similarly, a pri company having paid up capital less than 3 million’ rupees is not. required to appoint a chartered accountant as auditor. [Sec. 247] 11. Audit of Financial Statements Audit of financial statement is not required in a paid up capital up to 1 million rupees. [Sec. 223(5)] 12. Director's Report 7 * A private company is not required to prepare a directors’ report for each financial year if its paid up capital is less than 3 million rupees. [Sec. 226] 13. Contract of Employment A private company is not required to keep a copy of contract of employment with directors at its registered office. (Sec. 210] 144, Consolidated Financial Statements A private company and ‘its subsidiary having paid up capital not exceeding 1 million rupees are not required to Publish consolidated financial statement. (Sec. 228] : A i Company into si 5 Conversion from Private ‘ompany into Single Member ¢, The following procedure is required for Conversion: [Sec, 47) pureed hall pass a special resoluti 4. The company s eC ution to amend t} articles to include all the provisions relating toa single rember crandum as pany. 2. The company shall file an application for Conversion with the Commissii ion. private company having Scanned with CamScanner67. a order in Conversion bY 3 rwarded to the Private Company 3. If the Commission is satisfied writing, 4. A copy. of the 0! Shall allow the der confirming the conversion shall be fo company and registrar within 7 days: sum ane ate 5. The company shall file a COPY of the altered ener the registrar within 15 days from the date of the or jer. 6. The registrar upon registration of the memorandum and al certificate to that effect. 7. The conversion of status obligations, etc. Conversion from Single Member Company ii The following is the procedure for conversion: [See 47] 4. ‘The company shall pass a special resolution to amend the the provisions which are required for a single member company- 2. On the date of alteration of articles, it shall become & private company: 3, The company shall file a ‘copy of the altered memorandum and articles along with the special resolution with the registrar. 4, The registrar upon registration of the memoral certificate to that effect. = 5. The conversion of status of a company shall not affect‘any debts, liabilities, obligations, etc. . Conversion of Public Company into Private Company The following is the procedure to convert a public company into. company: [Sec. 46) 4, The company shall pass a special resolution to amend the memorandum and articles to include all the provisions relating to a private company. 2. The company shall file an application for. conversion with the’ Commission. 3. In case of conversion of listed’ company into a private company, the Commission shall give notice of application for conversion to the securities exchange. . 4. If the Commission is satisfied, it i er i sire it shall allow the conversion by an order in . 5. A copy of the order confirming the conversi company and registrar within 7 days. jon shall be forwarded to the 6.’ The company shall file a copy of the al i the registrar within 15 days from the tatoo the, en and articles with 7. The registrar upon registration of th certificate to that effect. memorandum and articles shall issue a s with ticles shall issue 4 ‘of a company shall not affect any debts; liabilities, nto Private Company articles to exclude indum and articles shall issue 2 a private Scanned with CamScannerPrivate ci 8. The conversion of status of a coi jadi oacanveraion company shall not affect any debts, Wabi Senversion of Private Company into Public Company lere are following two ways by whi pice 9 ys by which a private company may become 1. Conversion by Choice 5. die i The following is the procedure for conversion by choice: [Sec. 46] Ce a. The company shall pass a special resolution to amend the articles to exclugs| it the provisions which are required for a private company. “Tote Ss On the date of alteration of articles, it shall become a public company. ¢. The company shall file a copy of the altered Memorandum and articles alor, with the special resolution with the registrar. : d. The registrar upon registration of the memorandum and articles shall issue 4 certificate to that effect. &. The conversion of status of a company shall not affect any debts, liabilities obligations, étc. : 2. Conversion by Default : If a” private company makes default: in compliance. with Statutory requirements of a private company (i.e. membership- exceeds 50, allows free 7 transfer of shares, or invites public to: subscribe’ its shares or. debentures) the| ! company shall automatically become a Public. company. On application by the company or any interested person, the Commission may grant relief to the company on such terms and-conditions as it may think just. [Sec. 52] DIFFERENCE BETWEEN PRIVATE AND PUBLIC COMPANY The following are points of difference between the two. PRIVATE COMPANY PUBLIC COMPANY 4. Minimum Members At least 2 members are required to form a private company. A single member company requires 1 member. 2, Maximum Members an sana number The maximum limit of members is 50. | There is no limit on maximum It st 9. At least 3 members are required to form a public company. of members. ; Ae invi i chase its i cannot ive the public to purchase | It can invite the public to pul its shares. shares. 4, Commencement of Business sts business after obtaining start its bi srinivcement It can start its business’ after obtaining | It can star a the certificate of incorporation. the certificate of Scanned with CamScanner69, t Private Compan : busines: 0 hold statutory meeting tatutory report with the It is required t and submit 2 S| 5, Statutory Meeting (0 hold: statutory ‘| it is mot required t W ising. ana file statutory report wilh the registrar. registrar. 6. Issue of Prospectus " fr cannot issue _ prospectus or | it can issue prospectus oF 8 statement tatement in lieu of prospectus: in ieu of prospectus: 7. Prepare Articles : , ‘ it may prepare its own articles or adopt it must prepare its own articles. Table A. 3. Transfer of Shares It has no restriction Om the transfer of it has restriction on shares. shares. 9, Number of Directors 11 A single. member company has 1|A_ listed company has at leas! listed company has ‘rector and a private compan Nas at | directors and non ist least 2 directors. 7 at least 3 directors. 40. Filing of Returns it is not required to file annua returns with the registrar if its paid UP capital is, less than 1 million rupees. 44. Word ‘Limited’ it must use the word ‘Private Lin ited’ at the end of its name. 42. Signatories to Memorandum : 2 signatories to the memorandum are 3 or more signatories to memorandum required to form @ private company. are required to form public company. 43, Qualification Shares The. directors are not required to purchase qualification shares. 44, interested Directors A. director having interest in any contract can vote in board meetings. the transfer of itis required to file annual returns: with the registrar. it must use the word ‘Limited’ at the end of its name. - The directors are required to purchase qualification shares. A:-director having interest in any contract cannot vote in board meetings. 45, Audit : A private company which is not a|A_ public com i cae, s, an subsidiary of a public company or has appoint: a aire een 2 paid up capital less than 3 million | auditor. rupees _is not required to appoint_a ’ Scanned with CamScanner70 chartered | NOON S Private Comp, accountant as auditor. QuesTIONS istics- Define a private company. Explain its character Explain single member company. Explain the privileges of a private company- Explain the procedure of transfer of ‘shares ¢ bi Explain the conversion of private company into oe company. Explain the conversion of private into single mem 4 Differentiate between a private and public company. Scanned with CamScanner