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CA Intermediate · Corporate and Other Laws · Preliminary

Shreya, Tanmay and Uday hold 40%, 35% and 25% of the paid-up equity capital of Vihaan Traders Private Limited. The Articles restrict transfer of shares and the company has 3 members. Under the Companies Act, 2013, Vihaan Traders qualifies as which of the following types of company?

Vihaan Traders is a private company because it restricts share transfer and has at least two members, here three. Having more than two members does not make a company public. It may also qualify as a small company if it meets the prescribed paid-up capital and turnover limits.

  1. AA small company only if its paid-up capital and turnover are within prescribed limits, otherwise it cannot be small
  2. BA one person company, because a single member can hold the majority of shares
  3. CA public company, because it has more than two members
  4. DA private company with a minimum of two members, which may also be a small company if it meets the prescribed paid-up capital and turnover limitsCorrect

Explanation

A private company needs a minimum of 2 members, restricts share transfer and prohibits invitation to the public to subscribe to its securities. With 3 members and transfer restrictions, Vihaan is a private company. It can additionally be a small company if it meets the prescribed limits. Option A wrongly denies private company status; the key distractor D-type reasoning that more than two members makes it public is incorrect.

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