Page 199 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes 5. A private company can commence business immediately after receiving the certificate of
incorporation, while a public company can commence business only when it receives a
certificate to commence business from the Registrar.
6. A private company need not hold a statutory meeting but a public company must hold a
statutory meeting and file a statutory report with the Registrar.

7. The directors of a private company are not required to file with the Registrar written
consent to act as directors or sign the memorandum of association or enter into a contract
for their qualification shares. But the directors of a public company must file with the
Registrar their written consent to act as directors, must sign the memorandum and must
enter into a contract for their qualification shares.
8. Directors of a private company may be appointed by a single resolution, but it is not so in
case of a public company.

9. Directors of a private company are not required to retire by rotation, but in case of a public
company, at least two-third of the directors must retire by rotation.
10. The number of directors in a private company may be increased to any extent without the
permission of the Central Government, but in case of a public company if the number of
directors is to be more than twelve then the approval of the Central Government is
necessary.
11. Two members have to be personally present to form the quorum in a private company but
in a public company this number is five members.
12. In a private company, there are no restrictions on managerial remuneration.
13. In addition to the above, a private company enjoys some special privileges. A public
company enjoys no such privileges.
14. A private company cannot issue share warrants.

7.5.3 Special Privileges and Exemptions Available to a Private Company

A private company enjoys certain special privileges which are not available to a public company.
It is so because in a private company the money is raised from few people and generally they
belong to the same family or group or are close friends. Therefore, not much public interest is
involved therein. But in case of public companies where the money is raised from general public
and the number is quite large, it is necessary to safeguard their interests, hence several restrictions
are imposed on public companies.

Following are the special privileges available to a private company:
1. A private company can be formed with only two members [s.12 (1)].
2. A private company can proceed to allot shares without waiting for the minimum
subscription (s.69). The reason is that a private company is not required to offer shares to
the public.
3. A private company is not required to issue a prospectus. Therefore, it can allot shares
without issuing a prospectus or delivering to the Registrar a statement in lieu of prospectus
[s.70 (3)].
4. A private company need not offer further issue of shares to the existing shareholders, i.e.,
a private company is free to allot new issue to outsiders [s.81(3)].

5. A private company can issue any kind of shares and allow disproportionate voting rights
since Ss. 85 to 89 of the Act are not applicable to it. [s.90(2)].

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