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Differentiate between Public Company and Private Company

PRIVATE LIMITED

A private limited company is a business entity that is held by private owners. This
type of entity limits the owner’s liability to their ownership stake, and restricts
shareholders from publicly trading shares.

PUBLIC COMPANY

A public company is a company that has permission to issue registered


securities to the general public through an initial public offering (IPO) and it is
traded on at least one stock exchange market. A public company is not
authorised to begin its business operations just upon the grant of the
certificate of incorporation. In order to be eligible to run as a public company,
it should obtain another document called a trading certificate.

Introduction:

The Companies Act of 2013 has done away with the relaxation to private
companies in several provisions. The concept of “not applicable to private
company” is no more in existence in the Act of 2013. Such a move in the
Companies Act of 2013 has taken away certain privileges enjoyed by private
companies. The privileges are of two types. One is for the directors and to their
interest and the second one is for the private company itself. The Directors
were hitherto enjoying certain pleasure from the application of certain
provisions are now withdrawn. Further, the Companies Act, 2013 have
mandated certain new requirement like that of internal audit to both public
and private companies.

Statement showing Some key points of differences in applicability of various


provisions of the Companies Act, 2013 between a Public Limited Company
and a Private Limited Company:
Sr. Section Brief Private Limited Public Limited Company
No. Description Company
1 2 Meaning Minimum Capital : Rs. Minimum Capital : Rs.
100000Right to 500000Subsidiary of a Public
transfer the shares: Co. is deemed to be a public
Restricted Co.
2 2 Small If Paid-up Share Not Applicable
Company Capital does not
exceed Rs. 50 Lakhs
and Turnover as per
Last Audited accounts
does not exceed Rs. 2
Crore
2 3 Minimum 2 (Two),Maximum 7 (Seven)
Members 200 (Two Hundred)
Required
3 4 Name of the “Private Limited” as “Public Limited” as Last Word
Company Last Word
4 5 Provision of To be agreed and To be agreed and approved
entrenchment approved by all the through a Special Resolution
in the Articles members
5 23 Issue of By way of Right Issue To Public through Prospectus
Securities or Bonus Issue (“Public Offer”)By way of
Through Private Right Issue or Bonus Issue
Placement Through Private Placement
6 29 Public Offer to Not Applicable In case of public offer of
be in securities, the securities have
Dematerialised to be in Dematerialised Form
Form
7 40 Securities in Not Applicable Securities offered in Public
Public Offer to Offer, to be listed in
be listed in Recognised Stock Exchanges
Stock
exchanges
8 67 Purchase / Not allowed to Not allowed to Purchase its
Loan for Purchase its own own Shares No Financial
Purchase of Shares assistance to be given to
Own Shares purchase its own shares
9 73 Acceptance of Not allowed to accept Allowed if Paid up share
Deposits deposit capital is Rs. 100 Crore or
more or Turnover of Rs. 500
Crore or more
10 103 Quorum of Two members Five in case of Members up
Meetings personally present to 1000;Fifteen in case of
Members more than 1000,
up to 5000;Thirty in case of
Members exceed 5000.
11 138 Internal Audit Applicable in case of Applicable in case of
:1. Turnover >= Rs. :1. Paid Up Capital >= Rs.
200 Crore in 50 Crore in the preceding
preceding financial financial year,
year,OR2. Loans OR2. Turnover >= Rs. 200
from bank or NBFCs Crore in preceding financial
>= Rs. 100 Crore in year,OR
preceding financial 3. Loans from bank or
year NBFCs >= Rs. 100 Crore in
preceding financial year, OR
4. Public Deposit >= Rs. 25
Crore in preceding financial
year
12 134 Annual Not Applicable If Paid up share capital is Rs.
(3)(p) Evaluation in 25 Crore or more, the details
the Board’s of annual evaluation in the
Report Board’s Report
13 139 (2) Rotation of Applicable in case of Applicable in case of Paid up
Auditor Paid up Capital is Rs. Capital is Rs. 10 Crore or
20 Crore or more more
14 149 No. of 2 (Two);Not required 3 (Three); and In case of
Directors and to appoint Listed Companies, at least
Independent independent director One-Third as independent
Directors directors
15 152 Retirement by Not Applicable At least two-third of total no.
rotation – of directors be liable to retire
Appointment by rotation and eligible of
of Director being re-appointed in AGM
16 190 Contract of Not Required Compulsorily Required
Employment (Optional)
with Managing
Director /
Whole Time
Director
17 197 Restriction on No restriction on Managerial Remuneration is
Managerial amount of Restricted to 11% of Net
Remuneration managerial profit (subject to conditions);
remuneration ORat least Rs. 30 lakh p.a.
depending upon paid up
capital

Private Limited Company Advantages and Disadvantages:

Advantages of Private Limited Company:

 Restricted Liability: This ensures the advantages of the investors in the


event that if the organization must be closed because of a monetary
emergency, or if in the event that there is any misrepresentation, the
proprietor will dependably have the privilege to secure his/her
benefits/share capital.

 Pull in Funding: It syndicates both value and obligation assets to have an


ideal capital structure and draws in subsidizing from various sources like
financial speculators, swarms subsidizing and so forth.

 Building the TEAM: By offering stocks and proprietorship to the worker’s


gifts can be held. This procedure is on an ascent where stock offering holds
abilities.

 Validity Improvement: As it is enlisted as a corporate substance the


believability is enhanced, and it builds reliability in the market.

 Confinement on the exchange of Shares: It is a preference for different


accomplices, as the investors who may wish to pitch their offers to outcasts
can’t do as such. By the organization’s Act of 1984, it counteracts them to
do as such.

 Presence Continues: Even after the demise and exit of any investor, the
firm proceeds and its reality is protected.

 Tax reductions: Limited Company Registration appreciates tax cuts, as the


expense structure might be marginally lower than other corporate duties
for numerous elements. This adds an option advantage to private
constrained organizations.

 Foreign Direct Investment (FDI): It takes into account coordinate foreign


deposits/ investments through a simple channel.

Disadvantages of Private Limited Company:

 Registration Process: The enlistment procedure or Registration Process


might be riotous or hectic if tenets and directions or rules and regulations of
the MCA are not clear. One may read the rules for the consolidation of a
private constrained organization or guidelines for the incorporation of a
private limited company. The restricted organization or Limited company
enrolment should likewise be possible with the assistance of online offices
like Business Ventures India, helping business people for a Pvt constrained
organization enlistment. It, for the most part, takes 10-15 days for the total
fuse process or complete incorporation process which incorporates, the age
of DSC, DIN, Certificate of Incorporation, Company PAN, AoA, MoA, financial
balance and so forth.

 Documenting Taxes Every Year: It is critical to document the records at


Companies House each monetary year, which will be on an open record. A
Chattered Account, for the most part, deals with this, to document the
assessments for your private constrained organization.

 Cannot be Listed: In stock trade shares can’t be cited, i.e., the posting of the
organizations for the first sale of stock isn’t conceivable.

 Proprietorship Division or Ownership Division: A noteworthy hindrance of


a private restricted organization is that it requires at least 2 executives and
investors for its consolidation, which prompts the division of offers.

 Restricted Shareholders: In a Pvt Ltd company or Private Limited Company


the number of investors or individuals can’t surpass more than 50.

Public Limited Company Advantages and Disadvantages:

Advantages of a Public Limited Company


 Members: In order for a company to be public, it should have a minimum of 7
members (maximum unlimited).

 Limited liability: The liability of a public company is limited. No shareholder is


individually liable for the payment. The public limited company is a separate legal
entity, and each shareholder is a part of it.

 Board of Directors: A public company is headed by a board of directors. It should


have a minimum of 3 and can have a maximum of 15 boards of directors. They
are elected from among the shareholders by the shareholders of the company in
annual general meetings. The elected directors act as representatives of the
shareholders in managing the company and taking decisions. Having a bigger
board of directors therefore benefits all shareholders in terms of transparency as
well as fostering a democratic management process.

 Transparency: Private limited companies are strictly regulated and are required
by law to publish their complete financial statements annually to ensure the true
financial position of the company is made clear to their owners (shareholders)
and potential investors. This also helps to determine the market value of its
shares.

 Capital: A public company can raise capital from the public by issuing shares
through stock markets. Public companies can also raise capital by issuing bonds
and debentures that are unsecured debts issued to a company on the basis of
financial performance and integrity of the company.

 Transferable shares: A public limited company’s shares are purchased and sold
on the market. They are freely transferred among the members and the people
trading on stock markets.
Disadvantages of going public:
 Prospectus: For a public company, issuing prospectus is mandatory because the
public is invited to subscribe for the shares of the company.

 Expensive: Going public is an expensive and time consuming process. A public


company must put its affairs in order and prepare reports and disclosures that
match with SEBI regulations concerning initial public offerings (IPO). The owner
has to hire specialists like accountants and underwriters to take the company
through the process.
 Equity Dilution: Any company going public is selling a part of the company’s
ownership to strangers. Each bit of ownership that the owner sells comes out of
their current equity position. It is not always possible to raise the amount of
money that you may need to operate a public corporation from shares, so
company owners should hold at least 51 percent of the ownership in their
control.

 Loss of Management Control: Once a private company goes public, managing the
business becomes more complicated. The owner of the company can no longer
make decisions independently. Even as a majority shareholder, they are
accountable to minority shareholders about how the company is managed. Also,
company owners will no longer have total control over the composition of the
board of directors since SEBI regulations place restrictions on board composition
to ensure the independence of the board from insider impact.

 Increased Regulatory Oversight: Going public brings a private company under the
supervision of the SEBI and other regulatory authorities that regulate public
companies, as well as the stock exchange that has agreed to list the company’s
stock. This increase in regulatory oversight significantly influences management
of the business.

 Enhanced Reporting Requirements: A private company can keep its internal


business information private. A public company, however, must make extensive
quarterly and annual reports about business operations, financial position,
compensation of directors and officers and other internal matters. It loses most
privacy rights as a consequence of allowing the public to invest in its stock.

 Increased Liability: Taking a private company public increases the potential


liability of the company and its officers and directors for mismanagement. By law,
a public company has a responsibility to its shareholders to maximize shareholder
profits and disclose information about business operations. The company and its
management can be sued for self-dealing, making material misrepresentations to
shareholders or hiding information that federal securities laws require to be
disclosed.