Suraj
Asked February 13, 2014

Public v. Private Company

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What is the difference between a public company and a private company under the new Companies Act, 2013, vis-a-vis Maximum and Minimum no. of members, transferability of shares, Directors, Commencement of business, etc.? It would be great if you could provide an exhaustive answer.

Answer 1

A ‘Company’ is an association of persons, incorporated under The Indian Companies Act, 2013 or any other previous act. It is an artificial person having a separate legal entity, i.e. its identity is distinct from its members (who subscribe the memorandum of association of the company and whose name has been entered in the register of members) with limited liability. The company has a common seal, perpetual succession and it can sue and be sued in its own name.

There are some companies registered under this act, some of them are public limited company while others are a private limited company. The difference between these two entities are given as under:

A Public Limited Company or PLC is a joint stock company formed and registered under The Indian Companies Act, 1956 or any other previous act. It is an association of persons formed voluntarily, having a minimum paid up capital of Rs. 5,00,000.

There is no defined limit on the number of members the company can have. Also, there is no restriction on the transferability of the shares. The company can invite the public for the subscription of shares or debentures, and that is why the term ‘Public Limited’ gets added to its name.

Definition of Private Ltd. Company

A Private Limited Company is a joint stock company, incorporated under The Indian Companies Act, 1956 or any other previous act. It is an association of persons formed voluntarily, having the minimum paid up capital of Rs. 1,00,000. The maximum number of members is 50, excluding the current employees and the ex-employees who were the members during their employment or continues to be the member after the termination of employment in the company.

The company restricts the transfer of shares and prohibits invitation to the public for the subscription of shares and debentures. It uses the term ‘private limited’ at the end of its name.

Key Differences Between Public and Private Ltd. Company

To start a Public Limited Company, you must have at least seven members while a private company can begin with two members. The second difference between them is that a public company can have a minimum of 3 directors whereas the Private Ltd. company can have a minimum of 2 directors. It is compulsory to call a statutory general meeting of members, in the case of a public company, whereas there is no such compulsion in the case of a private company. In a Public Ltd. Company, there must be at least five members, personally present at the Annual General Meeting (AGM) for constituting the requisite quorum. On the other hand, in case of a Private Ltd. Company, that number is 2. The issue of prospectus/statement instead of the prospectus is mandatory in case of a public company, but the same is not mandatory for private companies. To start a business, the public company needs a certificate of commencement of business after incorporation, whereas a private company can start its business just after receiving a certificate of incorporation.

Conclusion

After discussing these two entities, it is very clear that there are so many aspects which distinguish them. Apart from the above-mentioned differences there are many other differences like, a public company can issue share warrant against its fully paid share to the shareholders, which a private company cannot.

The scope of a Private Ltd. The company is limited, as it is limited up to a few number of people, and enjoys less legal restrictions. On the other hand, the scope of a public Ltd. Company is vast, the owners of the company can raise capital from the general public and has to abide by several legal restrictions.

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