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| Restrictions of Private Companies |
| Private companies are defined under the Act as companies wherein : |
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The right to transfer shares is restricted |
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The number of shareholders or members is limited to between two and fifty |
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The shares and debentures cannot be offered to the public |
| In some circumstances a private company may be deemed to be a public company |
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| Advantages of Private Companies : Private companies enjoy the following rights : |
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Limited liability of corporate directors and share holders |
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No legal requirement to appoint local director or shareholder to incorporate a company in India. |
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Subject to RBI and Foreign Investment Promotion Board (FIPB) rules, foreign entities can own 100% equity in the Indian company. |
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They may appoint directors for life |
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They can set management compensation structures per their sole discretion. |
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Central Government approval is not required for loans to directors |
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| Requirements to form a PVT LTD company : |
| A Pvt Ltd Company must have - |
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Memorandum & Articles of Association : The Memorandum and Articles of Association is the primary “legal document” of a company. The Memorandum states the legal company name, its authorized share capital, initial members and object clauses. Articles of Association specify the internal regulations that govern the day to day operations of the company. |
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Share Capital : Shares must be expressed as a fixed number / amount. |
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Annual General Meetings (AGM) : An AGM must be held once in every financial year and not more than 6 months after the end of financial year. However, a company need not hold its first AGM until 18 months of its incorporation. |
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Public Filings : Key developments such as changes to the directors, registered office, share capital etc. must be filed with the Companies Registry, which is open for public inspection. |
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Accounts & Auditors : Every Private company must maintain books of accounts and must appoint an auditor/s. |
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| Requirements to form a Public Ltd. company : |
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A Public Limited Company is a Company limited by shares in which there is no restriction on the maximum number of shareholders, transfer of shares and acceptance of public deposits. The minimum number of shareholders is Seven (7). The liability of each shareholder is limited to the extent of the unpaid amount of the share face value and the premium thereof of the shares held by the shareholder. However, the liability of a Director / Manager of such a Company can at times be unlimited.
Certain provisions of the Companies Act stipulate restrictions applicable only to public companies : |
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Financing subscription of its own shares. |
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Management compensation is limited to 11% of the net profit of the company during the financial year. |
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Restricting the authority of the board of directors |
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Restricting loans to directors and |
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Restricting future issues of share capital. |
