Special Privileges of Private Company over Public Company in India

Special Privileges of Private Company

The following are some of the special privileges enjoyed by Private companies over public companies in India.

1. Minimum Number of Members

A public company should have a minimum of not less than 7 members for its formation. But only 2 members are enough to form a private company.

2. Commencement of Business

A public company can commence its business only after getting two certificates viz., Certificate of Incorporation and Certificate of Commencement of Business. But a private company can commence its business as soon as it gets the Certificate of Incorporation.

3. Allotment of Shares

A public company can allot shares only after the minimum subscription has been subscribed for by the public and a copy of the prospectus or a statement in lieu of prospectus has been filed with the Registrar. But a private company can allot shares irrespective of the number of shares subscribed by the applicants.

4. Kinds of Shares

A public company can issue only two types of shares viz., equity shares and preference shares. But a private company can issue any kind of shares and with such voting rights, as it may think fit.

5) Minimum Number of Directors

A public company should have not less than three directors. But a private company is required to have a minimum of only two directors.

6. Qualification Shares

The directors of a public company should acquire the qualification shares specified in the Articles of Association. But the directors of private company need not acquire even the qualification shares.

7. Consent of the Directors

In case of a public company, the director-elect has to give his consent in writing to act as such. It is also to be filed with the Registrar. But in a private company, the director-elect need not file his consent with the Registrar.

8. Resolution for Appointment of the Directors

In case of a public company, a separate resolution passed in a general meeting is necessary for appointment of each and every director. But in case of a private company, a single resolution is enough for appointing two or more directors.

9. Statutory Meeting

A public company must hold a statutory meeting and file a statutory report with the Registrar within the prescribed time. But a private company need not hold a Statutory Meeting and it need not file a statutory report with the Registrar.

10. Rights Issue

Whenever a public company issues any further shares, it has to offer them first of all to its existing members. Such new shares are called “Rights Shares”. The issue is called “Rights Issue”. But a private company need not issue right shares to the existing shareholders.

11. Index of Members

A public company should keep an index of the members at its registered office. But a private company need not keep an index of the members.

12. Multiple Directorship

A director of a public company cannot be a director of more than 15 companies at a time. But a director of a private company can be a director of more than 15 companies at the same time.

13. Managerial Remunerations

In case of a public company, the overall managerial remuneration should not exceed 10% of the net profit. But in the case of a private company, there is no such limit for the managerial remuneration.

14. Directors Interested in Contracts

In case of a public company, any director interested in a contract should disclose the fact that he is interested in the contract. He is not allowed to participate in the discussion and he cannot vote at the meeting. But in case of a private company, any director who is interested in a contract may participate in the discussion at the Board Meeting and can vote at the meeting.

15. Inter-corporate Investments

There are several restrictions provided in the Act for the investment of the funds of a public company in companies under the same management. No such restrictions are applicable to a private company.

16. Purchase of Own Shares

A public company cannot give financial assistance for the purchase of its own shares.

17. Compulsory Retirement

One third of the directors of a public company are compelled to retire by rotation every year. But in the case of a private company, the directors need not retire every year.

18. Loans to Directors

Without obtaining the previous approval of the Central Government, a public company cannot lend money or give guarantee or security to its directors. Such restrictions do not apply to a private company.

19. Quorum

Five members personally present is the quorum for a meeting of public company. But two members personally present is enough for a private company.

20. Managing Directorship

The Managing Director of a public company cannot be the Managing Director of more than two companies at a time. He cannot be appointed for more than 5 years. But in case of a private company, such restrictions do not apply.

21. Minimum Paid-up Capital

A private company must have a minimum paid-up capital of Rs.1 Lakh, whereas a public limited company must have a minimum paid-up capital of Rs. 5 Lakhs.