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'?

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'?

Accepted Answer

(a) Six privileges of a private company that make it more desirable than a public company: (i) Only two members are required to form a private company. (ii) Only two directors are required to constitute the quorum to validate the proceedings of the meetings. (iii) It can file a statement in lieu of prospectus with the Registrar instead of issuing a prospectus to the public. (iv) It can commence its business immediately after incorporation. (v) Holding of a statutory meeting or filing of a statutory report is not required. (vi) A non-member cannot inspect the copies of the profit and loss account filed with the Registrar.

(b) A company is called an artificial person because it is created by law and has no physical existence — it has no body and no conscience — yet, like a human being, it can buy, sell and own property, sue others and be sued by others. It has perpetual succession, which means that the company continues to exist even when its members change; the death, insolvency or exit of members does not affect the continuity of the company. It has a common seal with its name engraved on it, which serves as the company's signature on its official documents, since an artificial person cannot sign documents itself.