Intermediate · Paper 5 – Business Laws & Ethics · Companies Act, 2013 · 2:11
English
Transcript
Why can't anyone simply walk in and buy the shares of a private company? Let's find out.
Ganesh and his sister Revathi run Ganesh Sweets Private Limited in Madurai. One day, a stranger wants to buy Revathi's shares.
Revathi: Ganesh, can our directors refuse to register that transfer?
Section 2, clause 68 defines a private company. By its articles, a private company does three things.
One, it restricts the right to transfer its shares. This is not a total ban. The articles allow the directors to decline to register a transfer.
Only the restrictions in the articles count. A private agreement between two shareholders does not bind the company.
Two, it limits the number of its members to two hundred, except in a One Person Company.
Joint holders are counted as one member. Employees who are members are not counted. Former employees are also not counted, if they were members while in employment and continued after leaving.
Ganesh: So our cooks who hold shares are not counted in the two hundred?
Correct! And there is no limit on the number of debenture holders.
Three, it prohibits any invitation to the public to subscribe for its securities. So, no public offer of its shares.
What about minimum capital? The minimum paid up share capital was done away with by the Companies Amendment Act, 2015.
Exam tip! Remember three restrictions in the articles: restrict share transfer, limit members to two hundred, and no invitation to the public.
Let's recap. Section 2, clause 68. Restricts share transfer. Maximum two hundred members, not counting employees, and joint holders as one. And no invitation to the public.
Now try the test in the MPA app. In the next video, we will learn about the public company.