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Difference between Public Company and Private Company

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  • Last Updated : 03 Oct, 2022
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A company is one of the most important and prominent forms of business organisation. It can be described as a voluntary association of individuals, having a common purpose, who agree to pool their funds and unite to achieve the said goals. It can be called an artificial person created under the jurisdiction of law having a distinct legal personality and its own signature, referred to as the common seal. It is essentially an artificial person in that it exists independently of the people who own, direct, and support its business. In legal terms, it is called an artificial person.

Majorly there are two types of companies:

Public Company:

According to the Companies Act, 2013 a public company is one which invites the general public to subscribe to its share capital to raise funds. Applications are invited through the issue of prospectus and shares are allotment is made subsequently. Such companies allow their shareholders to transfer their shares easily without restrictions. The shares of a public company are listed on stock exchanges and all the trading is handled there with the help of brokers. Other characteristics of a public company include:

  • The minimum number of members required to incorporate a public company is 7 and there is no limit on the maximum number of members.
  • It has a minimum paid-up capital of 5 lakhs.
  • Any private company which is the subsidiary of a public company is also a public company.

Every public company shall use the suffix “Ltd.” in its name as per the Companies Act, 2013. 

Private Company:

Contrary to a public company, a private company is one that does not offer its securities to the general public for subscription through stock exchanges, rather such trading is done either privately or over the counter. Such companies might also restrict the rights of their members when it comes to transferring shares. A private company can also transition to a public company subsequently at a point of time in its lifetime. Going public would give company access to a number of other funding prospects as compared to a private corporate body. When a private corporation goes public, all the privately owned securities become public ownership and can now be listed on the stock exchange. Other characteristics of a private company include:

  • The minimum number of members in a private company is 2 and the maximum is 200.
  • It has a minimum paid capital of 1 lakh.
  • Such a company does not invite the general public to subscribe to its deposits.

As per the Companies Act, 2013 every private company is required to use the suffix “Pvt. Ltd.” in its registered name. For example, ABC being a private company is required to disclose that through the suffix ABC Pvt. Ltd.

Difference between Public Company and Private Company:

Basis

Public Company

Private Company

Meaning A public limited company means a company that is listed on a recognised stock exchange and whose shares are publicly traded. A private limited company refers to a company that is not listed on a stock exchange and the shares are held privately by the members concerned.
Number of Members Minimum 7 and there is no limit for Maximum members. Minimum 2 and Maximum 200 members.
Articles of Association It can draw up its own articles of association or adopt Schedule F. They must draw up their own articles of association.
Transfer of shares   The shares of a publicly traded company are freely transferable, i.e., freely tradable in an open market called the stock exchange. Shares of a private company are not freely transferable, as the articles of association contain restrictions.
Public subscriptions  It may invite the public to subscribe for its shares or bonds. Issuance of shares or bonds to the public is prohibited. 
Issuing a prospectus  It may issue a prospectus or may opt for a private placement. Issuing a prospectus is prohibited.
Minimum allotment amount   The company cannot issue shares unless it reaches the minimum subscription specified in the prospectus. The company may allot shares without obtaining a minimum subscription.
Starting a business  After incorporation, it requires a certificate of commencement of business. You can start a business immediately after receiving an extract from the commercial register.
Appointment of director  One director may be appointed by one resolution. Two or more directors may be appointed by one resolution.
Statutory meeting  Statutory meeting is mandatory Statutory meeting is optional.
Use of suffix  A public company must compulsorily include the words “Limited” in its name.  A private company must include “Private Limited” as a suffix in its name.
Disclosing reports to the public A public company must compulsorily issue quarterly and annual financial statements to the public. A private company does not have to disclose its financial results to the public.
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