Public and Private Limited Company Differences
Public and private limited companies are the two most widely popular structures in India. They long remained an apparent choice for most entities seeking to thrive in a given industry. Both structures adhere to a host of benefits including perpetual existence, limited liability, ample scaling potential, and stable management. While either structure is beneficial in many aspects, they are upheld by distinct legalities and compliances. That’s why it is vital to know public and Private Limited Company Differences in detail before you begin your business journey.
What is a private company?
A private company, as the name suggests, is a privately held entity that comes with several pros and cons. Ideally suited to entities with moderately large management, a private limited company comes with a slew of perks like limited liabilities for members, hassle-free compliances, and uninterrupted service life. The only area this structure lacks is its inability to scale when expansion opportunities come along the way. Notably, this structure falls under the Companies Act, 2013. It defines such entities as a joint stock company formed by two or more members.
Besides the above perks, these entities attract certain restrictions such as the inability to trade shares publicly, complicated winding up formalities, and cumbersome share transfer. All these restrictions limit such entities from becoming sizable organizations.
Unlike public limited entities, these entities are easy to incorporate due to minimal paperwork and moderate compliances. Its formation requirements include at least 2 directors (a higher number can go up to 7), minimum paid-up capital of Rs 1,00,000, availability of a registered business place, and drafting of charter documents.
It is worth noting that private limited companies can accommodate as many as 200 members (excluding former and current employees).
What is a public company?
A public company can be viewed as an enlarged version of a private limited company with the additional leverage of public share trading, paving the way for future expansion. Forming a public limited company requires at least 7 members and a minimum paid-up capital worth Rs 5,00,000. Other incorporation requirements include drafting of foundational documents and subscribers to the memorandum.
Underlining Public and Private Limited Company Differences
Public companies are eligible to trade their shares on the recognized share exchange, enabling them to raise capital as and when required. Conversely, private companies cannot do so owing to the limitation imposed by its governing legislation.
Public firms confront stringent operational norms and massive due diligence. Also, they are liable to keep their finances as transparent as possible for investors and regulatory authorities. Let’s take a closer look at key Public and Private Limited Company Differences
| Category | Private Limited Company | Public Limited company |
| Meaning | As per the Companies Act 2013, these entities are referred to as joint stock companies that must have at least 2 founding members | These entities are referred to as joint stock companies that must have at least 7 founding members/shareholders. |
| Number of Members | Private limited companies can hold up to 200 members at max. | Public limited companies can accommodate any number of members. |
| Minimum paid-up capital | Rs 100000 | Rs 500000 |
| Transferability of shares | Share transfer can happen between members through a legal process. | Share transfer can happen publicly under the SEBI’s provisions |
| Subscription from the public | Private limited companies are not allowed to accept subscriptions from the public. | Public limited companies have the privilege to do so but in the purview of the relevant legislation. |
| The allotment subject to a minimum subscription | Private limited companies must align with AOA provisions when it comes to the allotment of shares to the onboard members | Public limited companies can allot shares once they meet the minimum subscription requirements cited in the prospectus. |
| Number of Directors | 2 | 3 |
| Appointment of Directors | Appointment of directors requires BOD’s consent | BOD’s consent is mandatory to meet such requirements. |
| Quorum | Quoram refers to the number of members required to be present in the meeting to validate a certain subject matter. In the case of private limited companies, the quorum limit has been capped at at least 2 members. | In the case of a public limited company, the quorum limit has been capped at 5 |
| Statutory meetings | There is no need to arrange the statutory meeting | As per the purview of section 165 of the Companies Act 2013, these companies must convene statutory meetings. |
FAQs around public and Private Limited Company Differences
Q: What is the difference between a private and public Ltd company?
A: Private limited companies experienced limitations on account of public share trading. Conversely, the public limited companies can list their stock on the stock exchange and allot shares to the general public in view of the SEBI’s norms.
Q: What are the four differences between private and public companies?
A: The private and public limited companies differ on account of share trading, members required for incorporation, director’s appointment, and statutory meetings. You can refer to the above table for more information.
Q: Is it better to have a private or public company?
A: Well, it depends on factors such as growth prospects, compliance threshold, and management requirements. If you wish to operate nationwide or serve a wide market, selecting a private limited company is not advisable since it won’t be able to accommodate sizeable management.
Q: What is the difference between a one-person company, a private company, and a public company?
A: All these companies are governed by the Companies Act 2013. Whereas, OPC can be helmed by one director, the private and public limited company must have at least 2 and 7 founding members, respectively. Another distinction exists in the form of BOD’s consent. Whereas private limited companies can make most of the decisions without the board’s permission, public limited companies require BOD approval while deciding on any subject matter.
Q: Can one person open a private limited company?
A: Yes, you can convert an OPC into a private limited company through a set procedure that involves a convening board meeting, amending charter documents, appointing additional directors, filing a DIR-12 form, etc. Connect with Adviso to avail more information on the same.
Conclusion
Despite being governed by the same legislation, public and private limited companies do not fit into the same regulatory landscape. From the director appointment, decision-making, to capital procurement, both structures follow a distinct set of legalities. Therefore, it is vitally important to stay abreast of public and Private Limited Company differences before striving for incorporation.
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