Separate small and simple enactment is desirable for Private Limited Companies

[CA DEV KUMAR KOTHARI]

Private limited companies:

Private limited companies are generally incorporated by family members, friends and associates.  Even in case of transfer of controlling stake in such companies the transferees are also family members, friends and associates of the transferee group.

Restrictions:

Under the Companies Act 2013 private limited companies have restrictions about total number of members/ shareholders, restriction on invitation to and participation by public in raising of capital by private limited companies by way of shares, deposits and other securities. Many restrictions are also required to be placed in the Memorandum and Articles of Association of a private limited company.

Preferred organisation form:

A private limited companies is considered a preferred organisation form in comparison to partnership firms,  LLP , HUF and proprietary concerns by business parties, banks, financial institutions etc. For example, a manufacturer will prefer to appoint a private limited company as distributor or agent instead of partnership firm. Similarly banks also prefer to lend to private limited companies in comparison to partnership firms. Therefore, in many situations even for  start-up business company is required to be formed.

Separate and simple law for private limited companies is desirable:

Many of small private limited companies are formed by group of self employed entrepreneurs being family members,. Close relatives friends and associates. The inflow of funds by way of capital and loans in company is from these people and associates. Therefore, it is desirable that for private limited companies a small, separate Private Limited Companies Act be provided. To help small and medium entrepreneurs to carry business through such companies in more simple and  more effective manner without there being complexities of corporate laws.

Private limited companies should also have less regulators:

In case of private limited companies less regulations can be provided about its administration and reporting and filing with ROC.

Private limited companies should also have less regulatory authorities. For example, the role of Reserve Bank of India  should be minimal on such companies because these companies are not  inviting public for capital in any manner. There is hardly any justification for RBI to ask such companies to get registered in one or other category of NBFC. The RBI must apply its regulatory functions n ore result oriented manner by regulating large finance companies who raise capital from public at large. There is no purpose of regulating small private limited companies by asking them to get registered and file returns.

If the above suggestion is implemented, it will really  cause focus  Minimum Government but Maximum Governance, an important   ideology of the present  government headed by honourable Shri Narendra Modi..