Sapan Loyalka (Chartered Accountant) 07 June 2008

Adv. & Dis Adv of Pvt. Ltd. Co.

Can anyone please outline Advantages and Disadvantages of Pvt. Ltd. Co. over Public Ltd. co. with regard to procedures, law, penalties, etc. with respect to Cos. Act, Income Tax Act, Sebi, etc.

Further, if you can share the procedures for conversion from Pvt. Ltd. co. to Public Ltd. co., the documents to filed with ROC, Resolutions required, Changes in MOA & AOA, etc.

Thanks & Regards,

Sapan

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4 Replies

amit gupta_lawyer (lawyer) 08 June 2008

Types of Companies

1.Public Company means a company which not a private company.

2.Private Company

means a company which by its articles of association :-

Restricts the right of members to transfer its shares

Limits the number of its members to fifty. In determining this number of 50, employee-members and ex-employee members are not to be considered.

Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company.

If a private company contravenes any of the aforesaid three provisions, it ceases to be private company and loses all the exemptions and privileges which a private company is entitled.

Following are some of the privileges and exemptions of a private limited company:-

Mimimum number is members is 2 (7 in case of public companies)

Prohibition of allotment of the shares or debentures in certain cases unless statement in lieu of prospectus has been delivered to the Registrar of Companies does not apply.

Restriction contained in Section 81 related to the rights issues of share capital does not apply. A special resolution to issue shares to non-members is not required in case of a private company.

Restriction contained in Section 149 on commencement of business by a company does not apply. A private company does not need a separate certificate of commencement of business.

Provisions of Section 165 relating to statutory meeting and submission of statutory report does not apply.

One (if 7 or less members are present) or two members (if more than 7 members are present ) present in person at a meeting of the company can demand a poll.

In case of a private company which not a subsidiary of a public limited company or in the case of a private company of which the entire paid up share capital is held by the one or more body corporates incorporated outside India, no person other than the member of the company concerned shall be entiled to inspect or obtain the copies of profit and loss account of that company.

Minimum number of directors is only two. (3 in case of a public company)

The Company Law Board on being satisfied that the infringement of the aforesaid 3 conditions was accidental or due to inadvertence or that on other grounds, it just an equitable to grant relief, may grant relief to the company from the consequences of such infringement. The infringement of the aforesaid 3 conditions does not automatically convert a private company into a public company. It continues to remain a private company; it merely ceases to be entitled to the privileges and exemptions available to a private company.

3.Companies deemed to be public limited company:

Where at least 25% of the paid up share capital of a private company is held by one or more bodies corporate, the private company shall automatically become the public company on and from the date on which the aforesaid percentage is so held.

Where the annual average turnover of the private company during the period of three consecutive financial years is not less than Rs 25 crores, the private company shall be, irrespective of its paid up share capital, become a deemed public company.

Where not less than 25% of the paid up capital of a public company limited is held by the private company, then the private company shall become a public company on and from the date on which the aforesaid percentage is so held.

Where a private company accepts deposits after the invitation is made by advertisement or renews deposits from the public (other than from its members or directors or their relatives), such companies shall become public company on and from date such acceptance or renewal is first made

A private company will be treated as a deemed public limited company in any of the following circumstances :-

Manish Singh (Advocate) 09 June 2008

conversion is a very extensive issue. better go thoroughly though any company law book. you need to take permission from central govt etc.

Private companies do not need to follow some statutory obligations which are mandatory for public companies like holding annual general meeting etc. Private comp. can not ask money from general public in respect of its securities , instead they need to be dependent on its own or relatives or friends etc.

Srinivasa Rao Anasingaraju (company secretary) 10 June 2008

Sir,

There is no deemed public company concept under current companies act, 1956.

Guest (n/a) 14 June 2008

Sir, This is Dr. Kishore, ACS. I was your junior in JKC COllege, Guntur. I was your class mate in Oral Coaching for Final CS in Hyd. I need some help in converting a partnership firm in to a private ltd company under Part IX of Companies Act. Can I get your telephone numbers to discuss on the subject with you for taking guidance. Rgds, Dr. Kishore, 9949094240 / okkishore@gmail.com