State the important privileges available to a private company.


By Harshvardhan, the Subject Matter Expert at Edumarz

Solution: A private company is a company in which:

(a) the right of members to transfer their shares is restricted. And 

(b) has a minimum of 2 and a maximum of 200 members excluding the present and past employees;

(c) does not invite the public to subscribe to its securities and

It is compulsory for a private company to use the word private limited after its name. If a private company contravenes any of the aforesaid provisions, it ceases to be a private company and loses all the exemptions and privileges to which it is entitled.

The following are some of the privileges of a private limited company as against

a public limited company:

  1. A private company can be formed by only two members whereas seven people are needed to form a public company.
  2. There is no need to issue a prospectus as the public is not invited to subscribe to the shares of a private company.
  3. Allotment of shares can be done without receiving the minimum subscription. A private limited company can start a business as soon as it receives the certificate of incorporation.
  4. A private company needs to have only two directors as against the minimum of three directors in the case of a public company. However, the maximum number of directors for both types of companies is fifteen.
  5. A private company is not required to keep an index of members while the same is necessary in the case of a public company.

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