Privileges and Exemptions of a Private Company

Under the Companies Act, 2013 (India), a private company enjoys several privileges and exemptions vis‑à‑vis a public company, mainly because it does not invite subscriptions from the public and its shares are closely held. These are designed to reduce compliance burden and facilitate easier management.

 

Below are the key privileges and exemptions of a private company, grouped thematically:

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1. Formation and minimum requirements

 

s Minimum members: A private company can be formed with only 2 members (against 7 for a public company).

 

s Minimum directors: Only 2 directors are required (public companies require 3 directors).

 

s Lower paid‑up capital: Earlier statutes allowed incorporation with a lower paid‑up capital (e.g., ₹1 lakh) compared to public companies (₹5 lakh), though detailed thresholds now depend on current fee‑structure rather than a strict cap.

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2. Share capital and issue of shares

 

s No “minimum subscription” regime: A private company may allot shares without completing a minimum subscription and without waiting for public subscription.

 

s No statutory obligation to first offer shares to existing members: Unlike public companies, a private company need not first offer further issue of shares to existing shareholders.

 

s Flexible share structure: A private company may issue various kinds of shares (equity, preference, deferred, etc.) and may attach disproportionate voting rights, subject to its Articles and later provisions of the Act.

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3. Prospectus and commencement of business

 

s No requirement to issue a prospectus: A private company may allot or transfer shares without issuing a prospectus or a “statement in lieu of prospectus” to the public.

 

s No certificate of commencement of business: A private company can commence business immediately after incorporation (upon receiving the Certificate of Incorporation), without needing a separate “Certificate of Commencement of Business”.

 

s Statutory meeting/report not required: A private company is not required to hold a statutory meeting or file a statutory report, unlike public companies.

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4. Meetings and quorum

 

s Relaxed quorum for meetings:

 

® For general meetings, two members personally present generally form quorum, unless the Articles provide otherwise.

 

® For board meetings, the quorum is generally one‑third of the total directors or two directors, whichever is higher, but rules may be relaxed further by the Articles.

 

s No statutory AGM obligation in single‑member cases: If a private company has only one member and one director, the requirement to hold an Annual General Meeting (AGM) does not apply.

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5. Restrictions on transfer and control

 

s Restriction on transfer of shares: The Articles of a private company may restrict the right to transfer shares, a freedom not available to public companies.

 

s Refusal of registration of transfer: A private company may refuse to register a transfer of shares without giving the transferee a right of appeal to the tribunal, depending on the inter‑se par‑pro‑provisions and later amendments.

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6. Director appointments and managerial remuneration

 

s Appointment by single resolution: All the directors of a private company may be appointed by one single resolution (earlier practice), whereas public companies often required separate resolutions for each director.

 

s Relaxed ceiling on managerial remuneration: Private companies are generally not subject to the same strict overall ceiling on managerial remuneration as public companies (e.g., the 11%‑of‑net‑profit cap in older regimes).

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7. Index of members and disclosures

 

s No compulsory index of members up to 50 members: A private company is not required to keep an index of members, unless the number of members exceeds 50.

 

s Limited public disclosure: Certain filings (e.g., profit‑and‑loss accounts and some resolutions) are not open to public inspection, unlike those of public companies.

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8. Exemptions from certain provisions

 

Under the Companies Act, 2013, many sections that apply to public companies are wholly or partly inapplicable to private companies (excluding subsidiaries of public companies), such as:

 

s Restriction on accepting deposits from the public (Section 73/76‑like regimes are relaxed).

 

s Certain provisions on loans and investments (Sections 185, 186, 188) are relaxed or modified for private companies.

 

s Some corporate‑governance and disclosure requirements (e.g., promoter‑shareholding disclosures, certain resolution‑filing rules) are eased or exempted.

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9. Other practical privileges

 

s Flexible internal rules: The Articles of a private company may lay down shorter notice periods, special voting procedures, proxy‑related rules, and directorial‑appointment procedures, giving greater internal discretion.

 

s Fewer restrictions on loans and investments: Private companies generally enjoy greater freedom in providing loans and making investments compared to public companies, subject to the specific provisions of the Act.