What are the privileges available to a Private Company?

1. A private company may be formed by only 2 members
2. A private company can commence business after getting the certificate of incorporation
3. Minimum capital contribution required in the case of private co. is Rs. 1,00,000.
4. A private co. can allot shares before minimum subscription
5. Prospectus and statement in lieu of prospectus is not required to be issued.
6. A private company is not required to have a statutory meeting or file a statutory report.
7. A private company need not have more than two directors.
8. Rotational retirement not necessary
9. No permission is required for increasing directorship
10. Directors are not required to take qualification shares
11. In case of further issue of capital, the shares need not be first offered to the existing shareholders.
12. A director appointed on or before 1^st April, 1952, cannot be removed by the company in general meeting.
13. A private company need not maintain for general meeting.
14. Only 2 persons are required quorum for general meeting.
15. A private company may call and hold its general meeting by giving a notice shorter than 21 clear days.
16. A private company may remunerate the Managerial personnel by a profit percentage which can be higher than 11%.
17. Profit and Loss of a private company need not to be made open to public.
18. Rotational retirement of directors is not applicable to private company.
19. Directors are not required to file with the registrar, their consent to act as directors.
20. No approval of Central Government is required for appointment of a whole time director or managing director.
21. No restriction applies on directors, regarding the no. of companies he can be appointed as directors.
22. Loans to directors are not prohibited.
23. A private company is free to make its own provision in respect of method of determining net profit for remuneration.
24. The provisions of Sec. 372(A) with respect to inter company investment do not apply to private companies.
25. The Company law board is not empowered to interfere, to prevent change in Board of Directors.

(i)       Default of complying with the condition constituting a private company : If contravention is made in fulfilling the provisions contained in Sec. 3(i)(iii), the company will loose all the privileges and exemption given to it by the companies Act, 1956 and the act shall apply to it as if it were not a private company [section 43]

But there is a solution to the problem. The solution is that the company can apply to the Company Law Board for the relief. If company is in a position to satisfy the Company Law Board that the failure in compliance with the said requirement was not deliberate but was accidental than the CLB may relive the Company from such consequences. The grounds to grant relief should be just and equitable (provision to section 43).

(ii)     Consequences of membership falling below legal minimum: In the case of the public company the minimum number of member required is 7. The number of member in this case is reduced to 5 i.e.  below the minimum limit.  While the number is 50 reduced, and the company carries on business for more than six months than every person who is a member of during that time shall be personally liable for the payments of the whole debts of the company and will be severally sued there for.      (section 45)

To overcome this problem the existing members must transfer some of their shares to some nominees or other persons and thereby increase the number of members of the company, up to or more than 7 within the time mentioned.