Question

Certain companies cannot issue an invitation to the public to subscribe to its shares. The maximum shareholders of the company is limited to 50. The transfer of shares of the company is restricted. 

(a) Identify the type of company. 

(b) Explain the privileges enjoyed by these types of companies.

Answer 1

(a) Private Company 

(b) Privileges of a private company 

1. A private company can be formed by only two members. 

2. There is no need to issue a prospectus 

3. Allotment of shares can be done without receiving the minimum subscription.

4. A private company can start business as soon . as it receives the certificate of incorporation. 

5. A private company needs to have only two directors. 

6. A private company is not required to keep an index of members. 

7. There is no restriction on the amount of loans to directors in a private company.