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CA Foundation · Business Laws · The Companies Act, 2013

Indrajit forms a company with three other friends as co-founders. They are unsure about whether to register as a private or public company. The founders want to restrict share transferability, limit membership, and avoid public disclosure of shareholding patterns. Additionally, they plan to raise capital only from these four members without any public offer. Based on the Companies Act, 2013, which statement correctly describes their position?

They should register as private company to achieve all their stated objectives. Private companies under the Companies Act, 2013, can restrict share transfers via articles, limit membership, and avoid public capital raising, which aligns with the founders' requirements.

  1. AThey must register as public because they have more than two members
  2. BThey should register as private to achieve their objectives, but cannot restrict share transfers under the articles
  3. CThey should register as private to achieve all their stated objectives, which align with private company characteristicsCorrect
  4. DThey can choose either private or public, as the Act does not distinguish based on number of members

Explanation

A private company under Section 2(68) must have an upper limit on members (currently 200), restrict share transferability through its articles, and is prohibited from making public offers. Since these four founders want to restrict transferability, limit membership, and raise capital internally without public offers, a private company registration perfectly suits them. Public companies, by contrast, allow free share transferability and must make full public disclosures. The statement correctly identifies private registration as the means to achieve all stated objectives.

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