Private Limited Company

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Will a private limited company, which is a subsidiary of a public limited company be construed as a public limited company? If so, should that private limited company appoint Independent Directors?

 

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    Yes. A private limited company, which is a subsidiary of a public limited company will be deemed to be a public limited company under the Act.

    This would mean that the exemptions provided to Private Limited Companies would no longer be available. As such the provisions applicable to a public limited company would apply to a deemed public Company which includes the appointment of Independent Directors.

    Relevant Provisions

    As per Section 149(1)(a), every Public company shall have a minimum number of 3 directors.
    Additionally, as per Rule 3 of the Companies (Appointment and Qualifications of Directors) Rules, 2014, a Public Company will be required to appoint at least 2 Independent Directors if it has:
    (i) paid up share capital of Rs. 10 Crore or more; or
    (ii) turnover of Rs. 100 Crore or more; or
    (iii) in aggregate, outstanding loans, debentures, and deposits, exceeding Rs. 50 crores:
    A deemed Public Company would therefore also be required to appoint a minimum of 2 Independent Directors if it breaches any of the above threshold limits.

    It however can retain the clauses in its Articles w.r.t restrictions on transferability of shares, no of members, prohibition from inviting the public to subscribe to its shares and continue to be called a Private Limited Company.

    Disclaimer: The responses/ answers posted on this forum by CimplyFive does not intend to act as a professional advice for any specific company or event. It is intended to be an opinion for consideration of other professionals in furthering the debate. CimplyFive is not responsible for any loss or damage arising for anyone using or following the response/ answers given in this forum.

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