Question

Why is a private company more desirable than a public company? Give any two reasons.

Answer 1

Inspite of certain restrictions imposed on a private company, it enjoys certain privileges under the Companies Act. A substantial number of entrepreneurs prefer to form a private company because of the following important privileges:

1. Only two members are required to form a private company.
2. Only two directors are required to constitute the quorum to validate the proceedings of the meetings.
3. Such company can file a statement in lieu of prospectus with the Registrar of Companies.
4. It can commence its business immediately after incorporation.
5. Holding of a statutory meeting or filing of a statutory report is required by a private company.
6. A non-member cannot inspect the copies of the profit and loss A/c filed with the Registrar.
7. Limit on payment of maximum managerial remuneration does not apply to a private company.
8. Restrictions on appointment and reappointment of managing director do not apply.
9. Maintaining of index of members is not required by a private company.
10. Directors of the private company need not have qualification shares.