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CA Intermediate · Corporate and Other Laws · Preliminary

Meera Textiles Private Limited has a paid-up share capital of Rs 1.5 crore. Its shares are held by 40 members, and it has never invited the public to subscribe to its securities. Its articles contain the usual restrictions on transfer of shares. Which statement about the company is correct under the Companies Act, 2013?

The company is validly a private company. Under the Companies Act, 2013, a private company must restrict share transfer, bar public invitations for securities and have at most 200 members. Meera Textiles satisfies these conditions, and no minimum or maximum paid-up capital or turnover test now applies.

  1. AIt cannot be a private company because its paid-up capital exceeds Rs 1 crore
  2. BIt is validly a private company, since it restricts share transfer, prohibits public invitation and has no more than 200 membersCorrect
  3. CIt must convert into a public company because it has more than 20 members
  4. DIt becomes a public company automatically if its turnover exceeds Rs 10 crore

Explanation

A private company restricts the right to transfer shares, limits members to 200 (excluding employees and certain ex-employees), and prohibits invitation to the public to subscribe for securities. Meera Textiles meets all three conditions with 40 members. The Rs 1 crore paid-up capital limit was removed, so option A is wrong; there is no member limit of 20 or turnover test for conversion.

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