As it has been seen in company law it is necessary to understand the different classifications and definitions. But there is one vital definition which the Companies Act gives under Section 2(68), that of a “Private Company”. This blog therefore intends to give a clearer insight on what falls under Section 2 (68) clarifying on the features of private compnay, the advantages and disadvantages of a private company.

Definition of a Private Company:

According to Section 2(68) of the Companies Act 2013, a private company is defined as a company that: Restricts the right to transfer its shares. Limits the number of its members to a maximum of 200 (excluding employees and former employees who are also members). BARS the Company from inviting the public to subscribe for its shares or debentures.

Implications and Privileges of Being a Private Company:

Being classified as a private company comes with several implications and privileges. Some of them include:

• Ease of Formation: The formation of private companies is much simpler and quicker than the formation of a public company. They have less restrictions in the compliance aspect, thus makes less work in that area.

• Limited Liability: As in all other types of companies private companies also provide limited liability to their shareholders. The internal funds of shareholders are often protected in case of organizations’ credits or other obligations.

• Greater Control: Private companies are more equipped to allow the founders and or shareholders to enjoy a more direct controlling power in the management of the companies. This in turn facilitate proper management of the company’s affair since there is slightly lesser confusion and or cluttered attention.

• Confidentiality: Unlike in public companies, the private firms are under no legal requirement to make information on their operations and financial position available to the public hence afford privacy.

Restrictions and Limitations:

While private companies enjoy certain privileges, they are also subject to specific restrictions and limitations, including:

• Transfer of Shares: The shares of a private company cannot be sold to anyone easily or listed in the stock exchange. The transfer of share is prohibited in certain extend as stated in the article of association of the company.

• Membership Limit: A private company must not have more than 200 members, shareholders and its employees and ex-employees do not count. Such restriction keeps the domain of private companies rather selective.

• Public Offerings: Private companies cannot actually offer shares or debentures of the company to the public. They cannot promote the public to invest in their securities.

Conclusion:

It is important especially for those new to the business and operating environment to appreciate the description of the “Private Company” as provided by the Companies Act 2013 of India under Section 2(68). Private companies also have opportunities of Different benefits of LLP protection and management, decision-making, and easy registration. But they also suffer from certain restrictions such as limitation on transfer of its shares and banned number of members. In turn, considering the specifics of this classification, people can build enterprises consciously and abide by the proper legal requirements.

Interested in importing business? Still, have doubts or want professional help in registering a private company or guidelines on private companies regulations? Please feel free to connect with us at Instabizfilings. Having a dedicated, well-trained and experienced staff who are ready to supply you with the right information as well as guide you through many of the complexities surrounding company law make us the ideal partner for your business.

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