Everything you need to know about the key differences between public company and private company.
Public Company means which is formed with minimum of seven members and three Directors. There is no restriction on maximum number of members. The name of the company shall end with the word ‘Limited’ which is not a private company. Public Limited Company means a Company which is not a private limited Company and has a minimum Authorized Capital of Rs. 5 Lakhs. It does not carry the word ‘private’ in its name and also do not have the restrictions as carried out in the private limited companies.
Private Company means a company which by its articles of association restricts the right of members to transfer its shares. Limits the number of its members to fifty. In determining this number of 50, employee- members and ex-employee members are not to be considered. Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company. Prohibits any invitation or acceptance of deposits from persons other than its member, directors or their relatives; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definitions, be treated as a single member.
Difference between Public Company and Private Company: 15 Major Differences
Following are the main points of difference between a public company and a private company:
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1. Minimum Paid-up Capital- A company to be incorporated as a Private Company must have a minimum paid-up capital of Rs. 1, 00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5, 00,000.
2. Minimum Number of Members- Minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members.
3. Maximum Number of Members- Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company.
4. Transferability of Shares- There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association, whereas there is no restriction on the transferability of the shares of a Public Company.
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5. Issue of Prospectus- A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.
6. Number of Directors- A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have atleast 3 directors.
7. Consent of the Directors- There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company.
8. Qualification of Shares- The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company.
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9. Commencement of Business- A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it.
10. Share Warrants- A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Private Company can issue Share Warrants against its fully paid up shares.
11. Further Issue of Shares- A Private Company need not offer the further issue of shares to its existing shareholders, whereas a Public Company has to offer the further issue of shares to its existing shareholders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing shareholders in the general meeting of the shareholders only.
12. Statutory Meeting- A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.
13. Quorum- The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.
14. Managerial Remuneration- Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.
15. Special Privileges- A Private Company enjoys some special privileges, which are not available to a Public Company.
Difference between Public Company and Private Company: 10 Major Differences
1. Meaning:
The public company refers to a company that is listed on a recognized stock exchange and its securities are traded publicly. A private company is one that is not listed on a stock exchange and its securities are held privately by its members.
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2. Name:
A public company need not include the word “private” in its name. But for a private company, it is mandatory to write the words “private limited” at the end of its name.
3. Number of Members:
There must be at least seven members to start a public company. But on the contrary, the private company can be started with a minimum of two members. There is no ceiling on the maximum number of members in a public company. Conversely, a private company can have a maximum of 50 members, including its past and present employees.
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4. Number of Directors:
A public company should have at least three directors, whereas a private company can have a minimum of 2 directors.
5. Quorum:
It is compulsory to call a statutory general meeting of members, in the case of a public company. Presence of two members is an adequate quorum for the general meeting in case of a private company. On the other hand, there must be at least five members, personally present at the annual general meeting for constituting the requisite quorum in case of a public company.
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6. Capital:
A public company must have a paid-up capital of rupees five lakh. Conversely, a private company must have a paid-up capital of rupees one lakh.
7. Commencement of Business:
To start a business, the public company needs a certificate of commencement of business after it is incorporated. On the contrary, a private company can start its business just after receiving a certificate of incorporation.
8. Articles of Association:
A public company can adopt the model Articles of Association given in the Companies Act. On the other hand, a private company must prepare and file its own Articles of Association.
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9. Transferability of Shares:
The transferability of shares of a private company is completely restricted. On the contrary, the shareholders of a public company can freely transfer their shares.
10. Restrictions on the Appointment of Directors:
A director of a public company shall file with the registrar consent to act as such. He/she shall sign the memorandum and enter into a contact for qualification shares. He/she cannot vote or take part in the discussion on a contract in which he/she is interested. Two-thirds of the directors of a public company must retire by rotation. These restrictions do not apply to a private company.
Difference between Public Company and Private Company: 7 Key Differences
1. Objective:
Private enterprises are mainly profit-driven. Hence, they perform only those economic activities which offer a regular and steady return on capital investment. On the other hand, Public enterprises are guided by several socio-economic and political objectives. They perform a scale of operations with little regard for making profit.
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2. Ownership:
The ownership of a private enterprise rests in one or more private individuals or corporate bodies. On the other hand, Public enterprise is owned by the Central Government and / or one or more State Governments either singly or jointly.
3. Management:
A private sector enterprise is managed by its owners or their elected representatives. The management has to abide by the guidelines laid down by the owners. However, there is enough scope for initiative and dynamism because policies can be modified or even relinquished according to the requirements of the particular situation. On the other hand, there is little room for initiative and dynamism in public sector enterprises because the managers of such enterprises are expected to function within the rigid policy framework and rules framed by the Government.
4. Capital:
Private enterprises get their capital from the resources owned by the private investors/owners. They have limited capacity to raise capital and may face shortage of funds. On the other hand, the full or at least 51 per cent of the capital of a Public enterprise is provided by the Government from public funds. Such an enterprise can never be short of funds because Government can collect unlimited financial resources.
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5. Freedom of Management:
In a private enterprise, the owners are free to manage and control the affairs with minimum interference from outside agencies. Conversely, a Public enterprise faces continuous interference from several agencies, e.g., ministries, politicians and bureaucrats. Often the business operations suffer due to the interruption in daily affairs of the enterprise.
6. Flexibility:
A private enterprise can easily execute its policies and operations to meet the demands of any situation. There are few restrictions on its owners for attaining the objectives and policies of the enterprise. However, in a public enterprise, any change in objectives and policies requires the approval of the government and its functionaries, due to which sometimes an opportunity may be lost.
7. Area of Operations:
Private enterprises are ready to pursue any realm of investment where steady and reasonable returns are expected. But, public enterprises operate mainly in the field of basic and strategic industries, public utility services and other areas of social benefit.
Difference between Public Limited Company and Private Limited Company
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Difference # Public Limited Company:
1. Ownership – Owned by the State Government or Central Government or both.
2. Objective/Motive – To promote public welfare.
3. Social Objectives – They are launched to achieve social objectives like development of backward regions, creation of employment opportunities, etc.
4. Forms of Organisation – Departmental undertakings, Statutory Corporation and Government Companies.
5. Management – Managed by bureaucrats; hence efficient.
6. Financial Resources – Huge financial resources; no problem in expansion and growth.
7. Accountability – Accountable to the public through Parliament.
8. Political Interference – Comparatively more Political Interference.
9. Government Control – They are subject to strict financial control by the government.
10. Distribution of Income – Equitable distribution of income.
Difference # Private Limited Company:
1. Ownership – Owned by private individuals.
2. Objective/Motive – To maximize profits.
3. Social Objectives – Social objectives are not very important.
4. Forms of Organisation – Sole proprietorship, partnership, joint Hindu family business, cooperative societies and joint stock company
5. Management – Managed by professional managers; hence efficient.
6. Financial Resources – Limited financial resources; less scope for expansion.
7. Accountability – Accountable to the owners.
8. Political Interference – Less political interference
9. Government Control – They are not subject to strict financial control by the government.
10. Distribution of Income – Concentration of wealth in few hands.
Difference between a Public Company and a Private Company
Difference # Public Company:
i. Membership- Minimum number of members required is 7. There is no maximum limit to membership.
ii. Procedure for formation- Complicated and relatively costly.
iii. Name- Word ‘Limited’ is required at the end of the name.
iv. Transferability of shares- Freely transferable.
v. Prospectus- If capital raised from public prospectus is to be filed.
vi. Raising capital from public- Allowed.
vii. Allotment of shares- A number of legal restrictions.
viii. Commencement of Business- After obtaining certificate of commencement of business.
ix. Statutory meeting and report- Required to submit to the Registrar.
x. Quorum at the general meeting- Three.
xi. Number of directors- Minimum three. Maximum limit specified by the Articles.
xii. Rotation of directors- Retire by rotation.
xiii. Index of members- Index to be maintained.
xiv. Owner’s liability- Limited.
xv. Business secrets- Exposed to public.
Difference # Private Company:
i. Membership- Minimum number is 2 and maximum number is 50 (excluding past and present employee-share-holders).
ii. Procedure for formation- Simple and cheap.
iii. Name- Name must end with the words ‘Private Limited’.
iv. Transferability of shares- Restricted.
v. Prospectus- Filing of Prospectus or Statement not required.
vi. Raising capital from public- Not allowed.
vii. Allotment of shares- No restrictions.
viii. Commencement of Business- After obtaining certificate of incorporation.
ix. Statutory meeting and report- Not required.
x. Quorum at the general meeting- Two.
xi. Number of directors- Minimum two. No maximum limit.
xii. Rotation of directors- Need not retire by rotation.
xiii. Index of members- No need to maintain.
xiv. Owner’s liability- Limited.
xv. Business secrets- Secrets shared by the members.
Difference between Public Company and Private Company: 15 Differences (Point Wise)
Difference # Public Company:
1. Number of members – Minimum — 7, Maximum — No limit.
2. Name – The name must include the word “Limited”.
3. Number of directors – Minimum — 3.
4. Articles of Association – May adopt Table A as given in the Companies Act.
5. Public Subscription – Generally invites public to subscribe to its shares and debentures.
6. Prospectus – Must issue and file a prospectus or a statement in lieu of prospectus.
7. Allotment – Cannot allot shares without raising minimum subscription and without complying with other legal formalities. Further issue of shares must in the first instance be offered to the existing members.
8. Commencement of Business – Can commence business only after getting the Certificate of Commencement of Business.
9. Transfer of shares – No restrictions on transfer of shares.
10. Share Warrants – Can issue share warrants per bearer.
11. Statutory Meeting and Report – Must hold a statutory meeting and file a statutory report.
12. Deferred Shares – Cannot issue such shares.
13. Directors –
(i) Qualification shares may be prescribed.
(ii) One third of the two thirds of directors must retire by rotation every year.
(iii) Appointment and reappointment require approval of the Central Government.
(iv) An individual cannot be a director of more than 15 companies.
(v) Directors cannot borrow without the approval of Central Government.
(vi) Special resolution required for this purpose.
(vii) Interested director cannot vote in the meeting.
14. Minimum Paid up Capital – Rs. five lakh.
15. Index of Members – If membership exceeds 50, a separate index of members is required.
Difference # Private Company:
1. Number of members – Minimum — 2, Maximum — 50.
2. Name – The name must include the word “Private Limited”.
3. Number of directors – Minimum — 2.
4. Articles of Association – Must prepare its own Articles of Association.
5. Public Subscription – Cannot invite public to subscribe to its shares and debentures.
6. Prospectus – Need not issue and file a prospectus.
7. Allotment – No restrictions on allotment of shares. No binding on further issue of shares.
8. Commencement of Business – Can commence its business immediately after getting the Certificate of Incorporation.
9. Transfer of shares – Restrictions on transfer of shares.
10. Share Warrants – Cannot issue share warrants.
11. Statutory Meeting and Report – Not required to hold statutory meeting or file a statutory report.
12. Deferred Shares – Can issue deferred shares with disproportionate voting rights.
13. Directors –
(i) No Qualification shares.
(ii) Directors need not retire by rotation every year.
(iii) No restriction on the appointment and reappointment of managing/ whole time directors.
(iv) No limit on number of directorships.
(v) Directors can borrow from their company.
(vi) A director can occupy any office of profit.
(vii) Interested director can vote in the board meeting.
14. Minimum Paid up Capital – Rs. one lakh
15. Index of Members – Need not keep a separate index of members.
Difference between Public Company and Private Company
Difference # Public Company:
1. Number of Members – Minimum is seven. No maximum limit
2. Invitation for public Subscription – Invitation to public
3. Transfer of Shares – Transfer of shares allowed subject to the procedure and conditions laid down in its Articles
4. Minimum no. of Directors – 3
5. Commencement of Business – Can commence business after obtaining the certificate of Incorporation
6. Appointment of Directors – Requires a single resolution
7. Retirement of Directors – Directors don’t retire by rotation
8. Quorum – 5
9. Statutory Meeting – Compulsory and must happen
10. Managerial Remuneration – It cannot exceed 11% of the Net profits
11. Paid-up Capitals – It can be registered with a paid- up capital of Rs.5 lac.
Difference # Private Company:
1. Number of Members – Minimum is two, maximum is fifty (excluding past and present employee shareholders)
2. Invitation for public Subscription – No public offer either for shares or debentures
3. Transfer of Shares – Transfer of shares restricted.
4. Minimum no. of Directors – 2
5. Commencement of Business – Can commence business after obtaining the certificate of commencement.
6. Appointment of Directors – Each director is appointed by separate resolution
7. Retirement of Directors – 2/3’rd of the directors must retire by rotation at each annual general meeting
8. Quorum – 2
9. Statutory Meeting – Not compulsory
10. Managerial Remuneration – No restriction on the Managerial Remuneration
11. Paid-up Capitals – It requires a minimum paid-up capital of Rs.1 lac.
Difference between Public Company and Private Company
Public Company:
A Public Company means a company which:
(a) is not a private company;
(b) has a minimum paid-up capital of Rs.5, 00,000 or such higher paid-up capital as may be prescribed;
(c) Is a private company, being a subsidiary of a company which is not a private company.
The name of a Public Company ends with the word ‘Limited’/Ltd.
Public Company:
1. Number of Members – Minimum number of members is 7 and there is no limit as to maximum number.
2. Number of Directors – A public company must have at least 3 Directors.
3. Prospectus – Prospectus must be issued to invite general public to subscribe for shares, if not a Statement in lieu of Prospectus is filed with the Registrar of Companies.
4. Bye-laws or Articles – Articles of Association need not be prepared. Table A given in the Companies Act will then apply.
5. Minimum Paid-up Capital – Rs.5,00,000
6. Transfer of Shares – Transfer of shares is usually without any restriction.
7. Commencement of Business – In addition to the Certificate of incorporation, Certificate for Commencement of Business must also be obtained.
8. Name – The word ‘Limited’ must be used as part of the name.
9. Managerial Remuneration – Total annual remuneration must not exceed 11% of the net profit.
10. Allotment of Shares – Shares may be allotted only if shares equal to the minimum subscription have been applied for.
11. Share warrants – Can issue share warrants.
Private Company:
A Private Company is one which has a minimum paid-up share capital of Rs.1, 00,000 or such higher paid-up share capital as may be prescribed by its Articles of Association.
A Private Company:
(a) Restricts the right to transfer its shares, if any.
(b) Limits the number of its members to 50 not including its present or past employee members.
(c) Prevents the public from subscribing for any shares or debentures of the company.
(d) Prohibits any invitation or acceptance of deposits from persons other than its members and Directors or their relatives.
The name of a Private company ends with the words, ‘Private Limited’/Pvt. Ltd.
Private Company:
1. Number of Members – Minimum number is 2 and the maximum is 50.
2. Number of Directors – A private company must have at least 2 Directors.
3. Prospectus – Prospectus need not be issued.
4. Bye-laws or Articles – Articles of Association are necessary
5. Minimum Paid-up Capital – Rs.1, 00,000
6. Transfer of Shares – Shares can be transferred only with the consent of Directors.
7. Commencement of Business – Business may be commenced as soon as the certificate of incorporation is issued.
8. Name – The word ‘Private Limited’ must be used as part of the name.
9. Managerial Remuneration – No restrictions on Directors remuneration.
10. Allotment of Shares – Shares may be allotted as the Directors wish.
11. Share warrants – Cannot issue share warrants.
Difference between Public Company and Private Company
Difference # Public Company:
1. Minimum number of shareholders – 7
2. Maximum number of shareholders – Unlimited
3. Name – Should include the words “Limited”
4. Transferability of shares – Freely allowed
5. Issue of Prospectus – Must issue prospectus or file statement in lieu of prospectus with Registrar.
6. Minimum number of directors – 3
7. Share Warrants – Can be issued
8. Further Issue of Shares – Has to offer the further issue of shares to its existing shareholders as right shares
9. Quorum for general meetings – 5
10. Managerial Remuneration – Restricted to 11% of Net profits
11. Public ownership – Any person can own shares and become a member
12. Legal formalities – Lot of legal formalities to be followed
Difference # Private Company:
1. Minimum number of shareholders – 2
2. Maximum number of shareholders – 200
3. Name – Should include the words “private Limited”
4. Transferability of shares – Restricted
5. Issue of Prospectus – Not required to issue prospectus or file statement in lieu of prospectus.
6. Minimum number of directors – 2
7. Share Warrants – Cannot be issued
8. Further Issue of Shares – Has to offer the further issue of shares to its existing shareholders as right shares
9. Quorum for general meetings – 2
10. Managerial Remuneration – No restriction
11. Public ownership – General public cannot become members by owning shares
12. Legal formalities – Free from many legal formalities
Difference between Public Company and Private Company
The main points of difference between a public company and a private company are as follows:
i. Minimum paid-up capital – A company to be incorporated as a private company must have a minimum paid-up capital of Rs. 1, 00,000, whereas a public company must have a minimum paid-up capital of Rs. 5, 00,000.
ii. Minimum number of members – The minimum number of members required to form a private company is 2, whereas a public company requires at least 7 members.
iii. Maximum number of members – Maximum number of members in a private company is restricted to 50; there is no restriction of maximum number of members in a public company.
iv. Transferability of shares – There is complete restriction on the transferability of the shares of a private company through its Articles of Association, whereas there is no restriction on the transferability of the shares of a public company.
v. Issue of prospectus – A private company is prohibited from inviting the public for subscription of its shares, i.e., a private company cannot issue prospectus, whereas a public company is free to invite public for subscription, i.e., a public company can issue a prospectus.
vi. Number of directors – A private company may have 2 directors to manage the affairs of the company, whereas a public company must have at least 3 directors.
vii. Consent of the directors – There is no need to give the consent by the directors of a private company, whereas the directors of a public company must have file with the registrar’s consent to act as director of the company.
viii. Qualification shares – The directors of a private company need not sign an undertaking to acquire the qualification shares, whereas the directors of a public company are required to sign an undertaking to acquire the qualification shares of the public company.
ix. Commencement of business – A private company can commence its business immediately after its incorporation, whereas a private company cannot start its business until a certificate to commencement of business is issued to it.
x. Shares warrants – A private company cannot issue share warrants against its fully paid shares, whereas a private company can issue share warrants against its fully paid up shares.
xi. Further issue of shares – A private company need not offer the further issue of shares to its existing shareholders, whereas a public company has to offer the further issue of shares to its existing shareholders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing shareholders in the general meeting of the shareholders only.
xii. Statutory meeting – A private company has no obligation to call the statutory meeting of the member, whereas of public company must call its statutory meeting and file statutory report with the Register of Companies.
xiii. Quorum – The quorum in the case of a private company is 2 members present personally, whereas in the case of a public company 5 members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.
xiv. Managerial remuneration – Total managerial remuneration in the case of a public company cannot exceed 11 per cent of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a private company.
xv. Special privileges – A private company enjoys some special privileges, which are not available to a public company.
Difference between Public Company and Private Company
Difference # Public Company:
1. Minimum number of members – 7 persons.
2. Maximum number of persons – Unlimited.
3. Issue of prospectus – Must issue prospectus at the time of issue of shares or debentures to the public.
4. Certificate to commence business – It can commence business only after getting certificate to commence business.
5. Transfer of shares – Shares are freely transferable.
6. Number of directors – Minimum 3 directors.
7. Quorum of meeting – Five persons.
8. Name of a company – Name of a company must end with the word Limited.
9. Legal formalities – More legal formalities apply to a public company.
10. Listing in a stock exchange – Shares can be listed in a stock exchange.
11. Managerial remuneration – Maximum remuneration is restricted to 11% of net profit.
12. Statutory meeting – Statutory meeting must be held compulsorily.
13. Allotment of shares – Shares can be allotted only after minimum subscription has been received.
Difference # Private Company:
1. Minimum number of members – 2 persons.
2. Maximum number of persons – 50 persons.
3. Issue of prospectus – Need not issue.
4. Certificate to commence business – Need not get certificate to commence business.
5. Transfer of shares – There are many restrictions in transfer of shares.
6. Number of directors – Minimum 2 directors.
7. Quorum of meeting – Two persons.
8. Name of a company – Name of a private company must end with the word Private Limited.
9. Legal formalities – Less legal formalities apply to a private company.
10. Listing in a stock exchange – Shares cannot be listed in a stock exchange.
11. Managerial remuneration – Maximum remuneration is not limited.
12. Statutory meeting – No need for conducting statutory meeting.
13. Allotment of shares – Shares can be allotted after incorporation.
Difference between Public Company and Private Company
1. Number of members (Section 3) – The minimum number of members required to form a private company is 2, but for a public company is 7. The maximum number of members of a private company are 200 but there is no restriction on the maximum number of members in case of a public company.
2. Restriction on name – The name of a private company must end with the words- Pvt. Ltd., whereas a public company’s name must end with the words – Limited.
3. Transferability of shares – The right to transfer shares in a private company is restricted, but the shares of a public company are transferable in the manner provided by the articles of company.
4. Prospectus and statement in lieu of prospectus – A private company cannot issue a prospectus to the general public. A public company invites the general public to subscribe to its shares or debentures through a prospects. A private company is exempt from this requirement.
5. Quorum for general meeting (Section 103) – The quorum for a general meeting of a private company is two members present.
But quorum requirements for a public company is 5 members personally present if the number of members as on the date of meeting is not more than 1,000; 15 members if the number is more than 1,000 but not more than 5,000 and 30 members if the number is more than 5,000.
6. Managerial remuneration – In the case of public companies the overall managerial remuneration is restricted to certain percentage of net profits. However in the case of private company there are no such restrictions.
7. Public deposits- A private company cannot accept deposits from the public other than its shareholders, directors and their relatives. But a public company can accept public deposits from public subject to compliance with of Section 73(2) of 2013 Act and subject to rules made by the Central Government in consultation with Reserve Bank of India.
8. Issue of share warrants – A public company can issue share warrants but not a private company.
9. Filing of returns etc. – A private company is exempt from filing certain returns etc. while a public company has to periodically file with the Registrar of companies.