Private Company

The definition of Private Company has been amended by the Companies (Amendment) Act, 2000.  Now according to Section 3(iii) of the Companies Act, a Private Company should have a minimum paid up capital of one lakh rupees; restricts the right to transfer its shares; limit the number of members fifty;  it cannot make any invitation to the public to any shares or debentures; and prohibits acceptance of deposits from persons other than its members, Directors or their relatives.

Restricts the right to transfer of shares not means prohibition of share transfer. Shares in a Private Company are transferable as that of a public Company. But reasonable restrictions can be imposed to protect the interests of the promoters of Private Companies. Normally, Articles of Association should provide for that. A model article is given:

“The right to transfer shares is restricted in so that no shares can be transferred to an outsider without it first being offered to the existing shareholders at a price to be fixed by the Board of Directors of the Company. The Board of Directors may decline to register any transfer of shares to any person whom they do not approve, without assigning any reasons therefore and may also decline to register any transfer of shares on which the company has a lien”.

Limits the number of members fifty. While calculating this fifty, the following persons can be excluded. 1.   Present employee shareholders; 2.   Share holders, who became members during their employment with the Company and continue as members after the employment ceased.

Section 27(3) of the Companies Act, 1956 clearly states that a Private Company must have an Articles of Association and such an Articles of Association must contain the matters given in the Section 3(1)(iii). Where a Private Company makes a default in complying with any of the requirements of the Section 3(1)(iii), it shall be treated as a public Company and it cannot enjoy the privileges and exemptions of a Private Company. Section 43 of the Companies Act, 1956 makes for this. Then the Act shall apply to the Company as if it were not a Private Company. Such a Company can get restored its status by making an application before the Central Government by giving reasons for such default such as accidental, due to inadvertence or or any other sufficient cause. Such an application can be made by the Company or any interested person.

After the commencement of the Companies (Amendment) Act, 2000, a Company, which is a subsidiary of a Public Company, has become a public Company. So, a Private Company, which is a subsidiary of a public Company, cannot enjoy the privileges of a Private Company. News updates-30 November, 2012 The suggestions made by SEBI,  during drafting of the Companies Bill, 2011, with regard to issues relating to regulatory harmony, were duly considered and incorporated therein. Clause 135 of the Companies Bill, 2011, provides for the specified companies to spend at least 2% of the average net profits of last 3 years in pursuance of the company’s Corporate Social Responsibility policy and in case of failure, reasons should be placed in the Board’s Report. the Accounting Standards are amended from time to time keeping in view the requirements of the situation. under the the Remote Village Electrification (RVE) Programme proposals for financial support for creation of facilities for lighting/basic electricity through renewable energy sources in those remote unelectrified census villages and unelectrified hamlets of electrified census villages where grid extension was not found feasible by the State Governments and hence were not covered under the Rajiv Gandhi Gramin Vidyutikaran Yojna. The Indian Railway Catering and Tourism Corporation (IRCTC) website recorded its highest booking of 4.95 lakh e-tickets in a single day on 13th July, 2012. A unique facility for EPF members to download their e-pass book  The Insurance Regulatory and Development Authority (IRDA) has informed that in India, foreign companies can only form joint ventures with Indian companies.  The Reserve Bank of India  has issued circular dated November 5, 2012, permitting Scheduled Commercial Banks  to become members of the stock exchanges recognized by Securities and Exchange Board of India for the purpose of undertaking proprietary transactions in the corporate bond market.