Explain in brief the privileges of a private company.

A private company enjoys several special privileges and exemptions under the Companies Act as compared to a public company. The main privileges of a private company are:

1. Ease of Formation — A private company can be formed by just two persons, whereas a public company requires a minimum of seven members. Formation is therefore simpler and quicker.

2. No Need for Prospectus — A private company need not issue and file a prospectus or a statement in lieu of prospectus, as it cannot invite the public to subscribe to its shares and debentures.

3. Immediate Commencement of Business — A private company can commence its business immediately after getting the Certificate of Incorporation. It is not required to wait for the Certificate of Commencement of Business, unlike a public company.

4. No Minimum Subscription — There are no restrictions on the allotment of shares. A private company is not required to raise a minimum subscription before allotting shares. There is also no binding on further issue of shares to existing members first.

5. No Statutory Meeting — A private company is not required to hold a statutory meeting or file a statutory report with the Registrar of Companies.

6. Lesser Number of Directors — Only a minimum of 2 directors is required, as against 3 for a public company.

7. Directors – Greater Flexibility —

• No qualification shares need to be held by directors.
• Directors need not retire by rotation every year.
• No restrictions on the appointment and reappointment of managing or whole-time directors.
• No limit on the number of directorships an individual can hold.
• Directors can borrow money from the company.
• A director can occupy any office of profit without a special resolution.
• Interested directors can vote in board meetings.

1. Issue of Deferred Shares — A private company can issue deferred shares with disproportionate voting rights, which is not allowed for public companies.

2. Lower Paid-up Capital — A private company requires a minimum paid-up capital of one lakh rupees, while a public company requires five lakh rupees.

3. Privacy / Secrecy — A private company is not required to publish its accounts or file as many documents as a public company. Therefore, it can better maintain business secrets.

4. Quick Decisions — Since the number of members and directors is small, decisions can be taken quickly without elaborate procedures.

These privileges make a private company a flexible and convenient form of organisation, especially for family-owned and closely-held businesses.