Question

Gauri started her business of manufacturing designer furniture in Lonavala. Her business was a huge success and she thought of starting a designer studio involving huge capital in Mumbai as well as in Pune. Her friends wanted to join hands with her and open the same. They approached a chartered accountant and he suggested them to form a private company as according to him this form of company is more desirable. 

a. State any six privileges of a private company that make it a more desirable than a public company. 

b. Why a company is called ‘an artificial person having perpetual succession and a common seal’?

Answer 1

a. 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 is not required to file prospectus or 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. 

b. Company is called an artificial person because it is creation of law. It can hold property, sue and be sued but cannot perform other life functions. 

It has perpetual succession because coming and going of members does not affect the life of the company. 

It has a common seal or stamp under which the execution of all its business is done.