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Company, private

The Companies Act 1980 defined a private company as any company not being a public limited company, i.e. ‘hich had not satisfied the conditions laid down in that Act as necessary to registration as a public company.

A private company may be limited or unlimited and may be formed specifically as a private company or become one by default. All new unlimited or guarantee companics are de facto private companies. The old condition that allowed private companics to have fewer members no longer applies, as the minimum for all companies is now two members. Private limited companics are debarred from offering their shares or debentures to the general public and to do so constitutes a criminal offence. For this purpose offers to members or to employees, offers under an employee’s share scheme or offers to the families of members or employees are not offers to the public.

It is customary for private companies to restrict the right to transfer their shares. This was obligatory under the 1948 Companics Act, as was the limitation of members to fifty persons. Both these conditions have now been repealed, as has Part II of Schedule A of the Companies Act 1948, which gave guidance as to the contents of the Articles of a private company. This custom precludes ownership from being widely dispersed against the interests and wishes of other shareholders and is particularly suited to the usual purpose of small family businesses, which make up by far the greater part of all private companies in existence. Prior to the redefitiition of the private company by the 1980 Companies Act, such companies comprised some 97 per cent of all limited companies in the U.K. In so far as the new legislation has probably reduced rather than enlarged the number of true public companies, this percentage is unlikely to be lower now.

One other legal privilege enjoyed by private companies is that they need only have one director, whereas the minimum for a public company is two. Other benefits inelude the freedom to commence business without having to satisfy the detailed requirements demanded of public companies. freedom to appoint a secretary without special qualifications, no restrictions relating to age of directors and longer periods of grace in filing annual financial statements.

Reference: The Penguin Business Dictionary, 3rd edt.