Why fund raising is easier for a private company?

1. You can offer more share-capital choices than others.

You can have any kind of share capital by providing so in your private company's memorandum or articles unlike other companies limited by shares who can have two kinds of share capital viz. equity (including equity with differential voting rights) and preference share capital.

2. You have lesser complicated way to offer ESOP:

Although other companies can issue shares to their employees under Employees' Stock Option Scheme by passing a special resolution only but your private company has an edge over them because you can issue such shares by passing a simple resolution only.

3. You can buy back your shares with no prohibition. You can even lend money for buying your shares.

You know, power to buy back your own private company's shares is real panacea. It quickly increases your shareholders' wealth, polishes your financial ratios, uses excessive idle cash.

But law prohibits all other companies from buying back except in a few special cases.(Section 67)

Yet your private company can buy back easily if (a) no other body corporate has invested any money in your private company's share capital. (b) your private company's borrowings from banks or financial institutions or anybody corporate is less than twice its paid up share capital or 50 crore rupees whichever is lower; and (c) your private company has not defaulted in repayment of such borrowings subsisting at the time of making transitions under this section.

4. Even further issue of shares is easier

Further issue of shares – In case of right issue under section 62 period of notice can be shortened and private company may close its offer of rights issue before minimum period of 15 days. In other words, it needs not keep its right issue open for minimum period of 15 days. These benefits are available only if 90% of the member of the Company agrees.

5. You can accept deposits: If your private company falls in any of the below mentioned categories then your private company can accept deposits, borrow funds from its members without complying with the conditions as stated in clauses (a) to (e) of sub-section (2) of section 73 of the Companies Act 2013. However your private company should inform ROC in a prescribed manner.

Category A - The total deposits you have accepted from your members do not exceed one hundred percent of aggregate of the paid-up share capital, free reserves and securities premium account; or

Category B - Your private company isn't over 5 years old and is a startup.

Category C - Your private company fulfills all the following conditions, namely:-

(a) Your private company is not an associate or a subsidiary company of any other company;

(b) Your private company's borrowings from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower; and

(c) Your private company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section.