Advantages of a Private Limited Company Over a Public Limited Company

Corporate Law & Intellectual Property Rights | By ALOK PATNIA | Last updated on Oct 5, 2017

Taxmantra.com has received, in the last couple of months, innumerable queries from bootstrapped entrepreneurs and start ups on the advantages a private limited company can give to their business ideas, compared to a public limited company. To start with, there a quite a lot of advantages of a Private Limited Company over a Public Limited Company. We may also interchange the word ‘advantages’ with the word ‘relaxation’ in certain situations too. We have tabulated the queries and the most justified opinion as hereunder, accompanied by the relevant sections of the Companies Act, 1956.

*Section*	*The Cutting Edge*
3(1)(iii)	A Private Company need to have Minimum paid-up capital of Rs. 1 lakh as against Rs. 5 lakhs for Public Company.
12(1)	A Private Company can be formed by just two persons as against minimum seven persons required for incorporation of a Public Company.
58A	Deposits taken by Private Company from its members are exempt from the rigors of this Section. As per the provisions of this Section read with rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975 â€” amount received from its shareholders by a Private Company (provided the shareholder concerned furnishes at the time of giving the money to the Company, a declaration that the amount is not being given out of funds borrowed or accepted from others) is not included in the meaning of deposit. If the depositor ceases to be a shareholder, the deposits made by him cease to qualify for exemption from the date of such cessation
70(3)	A Private Company need not file Statement in lieu of Prospectus with ROC.
77(2 & 3)	There is no prohibition on a Private Company, which is not a subsidiary of a Public Company, to provide financial assistance to anyone for purchasing or subscribing for its own shares or of its holding Company.
81	A Private Company including subsidiary of a Public Company can issue its further shares to any person in any manner as it thinks best in its own interest
85 to 90	The Provisions of these Sections deals with kinds of share capital and that voting rights should be proportionate to the paid-up capital, prohibiting disproportionately excessive voting rights. These Sections are not applicable to a Private Company unless it is a subsidiary of a Public Company and such Company may issue share capital of any kind and with such proportionate or disproportionate or other voting rights as it may think fit.
108, 109, 110	The provisions of these Sections are about transfer of shares and debentures which shall not prejudice any power of a Private Company under its Articles to enforce the restrictions in rejecting a particular transfer of shares of the Company.
111(13)	The right of appeal to the Company Law Board against rejection of a transfer of shares is not available as long as the Private Company is only enforcing the provisions of its articles in rejecting a particular transfer. It appears from this section that a right of appeal will be available where the rejection is outside the provisions of the Private Companyâ€™s Articles. The right of appeal is also available where there is transmission by court sale or sale by other public authority [s. 111(11)]
149	Procedure for obtaining Certificate of Commencement of Business do not apply to a Private Company. A Private Company can commence its business as soon as the Certificate of Incorporation is issued by the Registrar of Companies.
165	Private Company is not required to hold statutory meeting or prepare any statutory report.
170 to 186	The Provisions of these Sections relating to General Meetings applies to a Private Company unless in any particular Section it is specifically expressed that the applicability is not intended or unless the Articles of a Private Company which is not a Subsidiary of Public Company make any other provisions in respect of any of the matters covered by these Sections. Relaxation in the length of Notice for calling General Meeting, contents and manner of Service of Notices, Explanatory Statements, Quorum for meeting, Chairman of meeting, Restrictions of voting rights, etc. can be made to the extent to which the Company makes provisions in its Articles.
192A	Passing of resolution by Postal Ballot is not relevant for Private Company.
198	Ceiling on overall managerial remuneration not applicable to a Private Company. A Private Company, which is not subsidiary of a Public Company, may remunerate those in management, by such higher percentage of profits or in any manner as it may deem fit.
204	Restrictions on appointment of any firm or body corporate to office or place of profit is applicable to a Private Company which is not a subsidiary of Public Company.
220	Only the Member of Private Company which is not a subsidiary of Public Company is entitled to inspect or obtain copies of Profit and Loss Account of the Company .
224(1B)	The ceiling on the number of Companies an Auditor can audit, does not include audit of Private Limited Companies.
252	Minimum Directors for a Private Company is 2 (two) against 3 (three) in case of Public Co.
255 & 256	The Provisions of appointment of Directors and proportion of those who are liable to retire by rotation are not mandatory to a Private Company which is not a subsidiary of a Public Company
257	The provision requiring to give 14 days notice by new candidates seeking election as directors and depositing of certain amount (Rs. 500) are not mandatory for Private Company which is not a subsidiary of Public Company.
259	Central Government approval for increasing number of directors beyond the permissible maximum (presently 12) not required for Private Company which is not a subsidiary of Public Company.
262	The provision relating to manner of filling casual vacancy among directors and the duration of the period of office of those so appointed do not apply to Private Company which is not a subsidiary of Public Company.
263(1)	Appointment of two or more persons as directors by a single resolution can be done by Private Company which is not a subsidiary of Public Company.
264	Filing of consent of candidate for directorship with the Registrar of Companies is not applicable to Private Company which is not a subsidiary of Public Company.
266	Restrictions on appointment of director and subscription to qualification shares are not applicable to Private Company
268, 269	Central Government approval for amendments relating to appointment/re-appointment of a Managing Director/Whole-time Director/not liable to retire by rotation is not required by a Private Company which is not a Subsidiary of a Private Company.
270-273	Requirements of qualification shares holding by directors the time within which the qualification shares to be acquired and filing of a declaration by each director of the qualification shares held, is not applicable to Private Company
274(1)(g)	The disqualificationunder this Section does not include directorships of Private Company
274(3)	A Private Company which is not a subsidiary of a public Company may in its Articles provide special grounds for disqualification for appointment of person for the office of a Director.
275 to 279	The Directorships of Private Companies are not to be considered while calculating the limit on number of Companies in which a person can be director.
283 (3)	A Private Company may in its Articles provide special grounds for vacation of office of a Director .
292A	Provisions relating to formation of Audit Committee are not applicable.
293	Restrictions on certain powers of Board of Directors regarding selling, leasing, remitting or giving time for payments of debts, investing or borrowing moneys, or contributing to charities other than for political purpose are not applicable to a Private Company which is not a subsidiary of a Public Company
295	Restrictions on loans to directors/relatives, etc. does not apply to Private Company
300	No restrictions on interested directors from participating in the proceedings of the Board and exercising their votes are applicable to a Private Company which is not a subsidiary nor a holding Company of a Public Company
309, 310, 311	A Private Company which is not a subsidiary of a Public Company, is free from restrictions on payment of remuneration to the directors or increase in their remuneration. The procedures like filing Form 25C not required in case of Private Company
317	Restriction on period of appointment of managing director/manager for more than 5 years at a time do not apply to Private Company unless it is a subsidiary of a Public Company.
349, 350	Provision relating to the determination of net profits and ascertainment of depreciation shall not apply to a Private Company.
372A	Restrictions on giving loans or guarantees to other Companies or on making investment in the shares of other Companies do not apply to Private Company unless it is a subsidiary of a Public Company.
386, 387, 388	No. of Companies in which a person may be appointed as manager, the remuneration of a manager and the application of Sections 269, 310 to 312 and 317 in relation to managers do not apply to a Private Company unless it is a subsidiary of a Public Company.
409(3)	Powers given to the Central Government to prevent change in the Board of Directors are not applicable to a Private Company unless it is a subsidiary of a Public Company
416(1)	Restrictions on Contract by agents of the Company in which the Company is the undisclosed principal shall not apply to a Private Company which is a not a subsidiary of a Public Company.

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*Section*	*The Cutting Edge*
3(1)(iii)	A Private Company need to have Minimum paid-up capital of Rs. 1 lakh as against Rs. 5 lakhs for Public Company.
12(1)	A Private Company can be formed by just two persons as against minimum seven persons required for incorporation of a Public Company.
58A	Deposits taken by Private Company from its members are exempt from the rigors of this Section. As per the provisions of this Section read with rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975 â€” amount received from its shareholders by a Private Company (provided the shareholder concerned furnishes at the time of giving the money to the Company, a declaration that the amount is not being given out of funds borrowed or accepted from others) is not included in the meaning of deposit. If the depositor ceases to be a shareholder, the deposits made by him cease to qualify for exemption from the date of such cessation
70(3)	A Private Company need not file Statement in lieu of Prospectus with ROC.
77(2 & 3)	There is no prohibition on a Private Company, which is not a subsidiary of a Public Company, to provide financial assistance to anyone for purchasing or subscribing for its own shares or of its holding Company.
81	A Private Company including subsidiary of a Public Company can issue its further shares to any person in any manner as it thinks best in its own interest
85 to 90	The Provisions of these Sections deals with kinds of share capital and that voting rights should be proportionate to the paid-up capital, prohibiting disproportionately excessive voting rights. These Sections are not applicable to a Private Company unless it is a subsidiary of a Public Company and such Company may issue share capital of any kind and with such proportionate or disproportionate or other voting rights as it may think fit.
108, 109, 110	The provisions of these Sections are about transfer of shares and debentures which shall not prejudice any power of a Private Company under its Articles to enforce the restrictions in rejecting a particular transfer of shares of the Company.
111(13)	The right of appeal to the Company Law Board against rejection of a transfer of shares is not available as long as the Private Company is only enforcing the provisions of its articles in rejecting a particular transfer. It appears from this section that a right of appeal will be available where the rejection is outside the provisions of the Private Companyâ€™s Articles. The right of appeal is also available where there is transmission by court sale or sale by other public authority [s. 111(11)]
149	Procedure for obtaining Certificate of Commencement of Business do not apply to a Private Company. A Private Company can commence its business as soon as the Certificate of Incorporation is issued by the Registrar of Companies.
165	Private Company is not required to hold statutory meeting or prepare any statutory report.
170 to 186	The Provisions of these Sections relating to General Meetings applies to a Private Company unless in any particular Section it is specifically expressed that the applicability is not intended or unless the Articles of a Private Company which is not a Subsidiary of Public Company make any other provisions in respect of any of the matters covered by these Sections. Relaxation in the length of Notice for calling General Meeting, contents and manner of Service of Notices, Explanatory Statements, Quorum for meeting, Chairman of meeting, Restrictions of voting rights, etc. can be made to the extent to which the Company makes provisions in its Articles.
192A	Passing of resolution by Postal Ballot is not relevant for Private Company.
198	Ceiling on overall managerial remuneration not applicable to a Private Company. A Private Company, which is not subsidiary of a Public Company, may remunerate those in management, by such higher percentage of profits or in any manner as it may deem fit.
204	Restrictions on appointment of any firm or body corporate to office or place of profit is applicable to a Private Company which is not a subsidiary of Public Company.
220	Only the Member of Private Company which is not a subsidiary of Public Company is entitled to inspect or obtain copies of Profit and Loss Account of the Company .
224(1B)	The ceiling on the number of Companies an Auditor can audit, does not include audit of Private Limited Companies.
252	Minimum Directors for a Private Company is 2 (two) against 3 (three) in case of Public Co.
255 & 256	The Provisions of appointment of Directors and proportion of those who are liable to retire by rotation are not mandatory to a Private Company which is not a subsidiary of a Public Company
257	The provision requiring to give 14 days notice by new candidates seeking election as directors and depositing of certain amount (Rs. 500) are not mandatory for Private Company which is not a subsidiary of Public Company.
259	Central Government approval for increasing number of directors beyond the permissible maximum (presently 12) not required for Private Company which is not a subsidiary of Public Company.
262	The provision relating to manner of filling casual vacancy among directors and the duration of the period of office of those so appointed do not apply to Private Company which is not a subsidiary of Public Company.
263(1)	Appointment of two or more persons as directors by a single resolution can be done by Private Company which is not a subsidiary of Public Company.
264	Filing of consent of candidate for directorship with the Registrar of Companies is not applicable to Private Company which is not a subsidiary of Public Company.
266	Restrictions on appointment of director and subscription to qualification shares are not applicable to Private Company
268, 269	Central Government approval for amendments relating to appointment/re-appointment of a Managing Director/Whole-time Director/not liable to retire by rotation is not required by a Private Company which is not a Subsidiary of a Private Company.
270-273	Requirements of qualification shares holding by directors the time within which the qualification shares to be acquired and filing of a declaration by each director of the qualification shares held, is not applicable to Private Company
274(1)(g)	The disqualificationunder this Section does not include directorships of Private Company
274(3)	A Private Company which is not a subsidiary of a public Company may in its Articles provide special grounds for disqualification for appointment of person for the office of a Director.
275 to 279	The Directorships of Private Companies are not to be considered while calculating the limit on number of Companies in which a person can be director.
283 (3)	A Private Company may in its Articles provide special grounds for vacation of office of a Director .
292A	Provisions relating to formation of Audit Committee are not applicable.
293	Restrictions on certain powers of Board of Directors regarding selling, leasing, remitting or giving time for payments of debts, investing or borrowing moneys, or contributing to charities other than for political purpose are not applicable to a Private Company which is not a subsidiary of a Public Company
295	Restrictions on loans to directors/relatives, etc. does not apply to Private Company
300	No restrictions on interested directors from participating in the proceedings of the Board and exercising their votes are applicable to a Private Company which is not a subsidiary nor a holding Company of a Public Company
309, 310, 311	A Private Company which is not a subsidiary of a Public Company, is free from restrictions on payment of remuneration to the directors or increase in their remuneration. The procedures like filing Form 25C not required in case of Private Company
317	Restriction on period of appointment of managing director/manager for more than 5 years at a time do not apply to Private Company unless it is a subsidiary of a Public Company.
349, 350	Provision relating to the determination of net profits and ascertainment of depreciation shall not apply to a Private Company.
372A	Restrictions on giving loans or guarantees to other Companies or on making investment in the shares of other Companies do not apply to Private Company unless it is a subsidiary of a Public Company.
386, 387, 388	No. of Companies in which a person may be appointed as manager, the remuneration of a manager and the application of Sections 269, 310 to 312 and 317 in relation to managers do not apply to a Private Company unless it is a subsidiary of a Public Company.
409(3)	Powers given to the Central Government to prevent change in the Board of Directors are not applicable to a Private Company unless it is a subsidiary of a Public Company
416(1)	Restrictions on Contract by agents of the Company in which the Company is the undisclosed principal shall not apply to a Private Company which is a not a subsidiary of a Public Company.

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