If anyone wants to register a new business/ company, there are basically three options available, for instance, a private limited company or one-person company or public limited company. If you are a budding entrepreneur or just curious to know the difference between a public and private company or you might be a student.
The private limited company is the most preferred choice of entrepreneurs as it is comparatively convenient and suitable in beginning for new businesses. For the time being, whatever be the reason to land this article, you are at the right place where I will briefly describe the significant difference between a private and public company.
Private Company and Public Company:
We can identify whether the company is private or public by its name, In private companies, a suffix ‘PVT LTD’ is mandatory whereas in case of public companies a suffix ‘LTD’ is compulsory. For instance, if the company is a private limited company its name should be ‘ABC Private Ltd’ however if the company is a public limited company, the name should be ‘ABC Ltd’.
The public companies are listed in any recognised stock exchange and whose securities such as stocks are traded publicly among different investors, on the other hand, shares/ equity of a private company is privately held by its members/ promoters and do not trade publicly.
Let us discuss head to head difference between a private and public company in brief.
Private Company vs Public Company:
|BASIS OF COMPARISON||PRIVATE COMPANY||PUBLIC COMPANY|
|Meaning||The companies which are operated and traded privately and whose shares are held by few individuals are Private limited companies.||The companies which are listed in any recognised stock exchange and whose stocks are traded publicly are Public limited companies.|
|Board of Directors||2||3|
|Paid Up Capital||1 Lac||5 Lacs|
|Commencement of Business||Certificate of Incorporation||Certificate of Commencement|
|Fundraising||PRIVATE INVESTORS||GENERAL PUBLIC|
|AGM Quorum||MIN 2 Members||MIN 5 Members|
|Management Emoluments||Maximum 11% of Net Profit||NO RESTRICTION|
|Disclosure of Financial Statements||Not Mandatory||Mandatory|
|Transfers of Ownership||RESTRICTED||TRANSFERABLE|
Difference between Private and Public Company:
The private and public companies can be distinguished based on the following important aspects.
The public limited companies are those which are listed in any recognised stock exchange where the securities (equity shares) of the company are traded publicly, on the other hand, a private company is privately owned and shares of which are not traded in any stock exchanges.
As I explained above private companies uses a suffix ‘PVT Ltd’ whereas public companies use only ‘Ltd’ as a suffix. Thus wherever you see the suffix Ltd or PVT Ltd, you should understand immediately whether the company is private or public limited.
3) Board of Directors:
In private companies, there must be at least 2 board of directors whereas, in public companies, a minimum of 3 directors is mandatory.
In other words, if you want to register a private company, you require at least two board of directors, however, in the case of public companies, at least three directors are required.
4) Paid Up Capital:
The Paid-up capital for private companies must be at least Rs 1,00,000/-, on the other hand, in public companies, a minimum paid-up capital of Rs 5,00,000/- is mandatory.
5) Minimum Members:
A private company must have a minimum of 2 members whereas a public company should have a minimum of 7 members.
6) Maximum Members:
In private companies a maximum number of members is restricted to 200 only, however, in case of public companies there is no such restriction on its number of members ie. the public companies may have an unlimited number of members.
7) Commencement of Business:
In public companies, there is always require a certificate of commencement to operate the business which is provided after the certificate of incorporation, on the other hand, businesses can be initiated immediately after getting the certificate of incorporation only.
A public limited company can raise funds from the general public by issuing the financial securities (through IPO and FPO) like stocks, corporate bonds, debentures etc in financial markets, while a private company can’t issue such securities instead it raises funds from private investors.
9) Statutory Meetings:
In public companies, statutory meetings are compulsory whereas statutory meeting is optional in case of private limited companies.
10) AGM Quorum:
In Annual General Meetings (AGM) of public limited companies, minimum 5 members must be present, on the other hand, there should be a minimum of 2 members present in AGM of private companies.
11) Management Emoluments:
There is no limitation on management remuneration in case of public companies, however, in private companies, management’s remuneration shouldn’t exceed 11% of net profit.
12) Disclosure of Financial Statements:
Every public limited company must disclose their financial reports in public on quarterly, half-yearly and annual basis, on the other hand, there doesn’t require to disclose their financial statements publicly in case of a private company.
13) Transfers of Ownership:
As stocks of the public companies are listed in the stock exchange and traded among the number of investors on a daily basis, thus ownership/ stakes can be easily transferred to anybody, however, in case of private companies transferring of ownership/ share is prohibited.
Hope you would have understood the difference between a public and private company. In a nutshell, we can conclude that a private company has fewer rules and regulations whereas a public company has various restrictions and compulsion.
In private companies, the board of directors have almost full control over the company while in public companies the directors can control whole company in such way as public companies are not owned by few members, they typically have large numbers of shareholders in the company.
Thus we can say that a private company may be limited to a few promoters and generally be a small company, however, the public companies are very large and have a large number of members/ promoters.
References: www.educba.com Private Company vs Public Company (source)