Shares of private limited company are not freely transferable justify
Answers
Answer:
The answer:
Explanation:
While the Companies Act necessitates a restriction on the transfer of the shares in a private company, the Act is silent of the nature of such a restriction. There is no specific restriction provided and the severity of the restriction could greatly differ from company to company. But it has been consistently held by various courts that the said restriction cannot be in the nature of an absolute prohibition.
As a private limited company must mandatory include restrictions on the transfer of shares in its Articles of Association, certain common types of restrictions are imposed by different companies so as to meet the requirements of the definition of a private limited company. The most common type of restriction that is imposed on the companies are by way of Right of Pre-Emption or Right of First Refusal.
Explanation:
1) According to Companies Act, 2013, A private limited Company is a company which by its articles, restricts the rights to transfer its shares, if any.
2) As it is a Private Limited Company its members should be minimum 2 and maximum 200 and must have a minimum paid up shares capital of one lakh rupees.
3) According to the Companies Act 2013, it is clearly mentioned that there is restriction on the right of members to transfer its shares if any.
4) As there is no interference of Government and the Private limited companies are owned and managed by the Private sector it can allow members to an extent upto 200 only.
Therefore, shares of Private Limited Company are not freely transferable.
According to marking pattern this length of answer is sufficient to score full marks in justify.