Companies are primarily classified into private and public. We are going to discuss them and how they differ from each other.
The term ‘company’ alludes to the voluntary grouping of people who came together to work toward a common goal. Know about the Differences Between Public Companies and Private Companies in India.
Since the firm and its members are two separate legal entities in the perspective of the law, one should not confuse the two. Additionally, it has a common seal, eternal succession, the ability to sue and be sued, and transferable share capital.
What is a Company?
A company is a legal entity that is created to conduct business activities. It is an organization that is formed by a group of people who come together to achieve a common goal. A company can be owned by individuals, other companies, or even the government. The purpose of a company is to generate profits by providing goods or services to customers.
Private Limited Company – Definition
The private limited company is a joint stock business, to put it simply. It is governed by the Indian Companies Act, 2013. It is created through the voluntary association of individuals with a paid-up capital of at least ₹1,00,000. Although there is a limit of 200 members, that figure does not include any present employees or former employees who were members while they were employed.
Even after leaving the company, employees are still able to remain members. Share transfers are prohibited. It forbids the public from entering through the purchase of shares and debt obligations. After its name, the phrase ‘private limited’ is employed.
Registration Requirements for Private Limited Company
To register a private limited company in India, the following requirements must be met:
- Directors: A minimum of two directors are required, and at least one of them must be an Indian resident.
- Shareholders: A minimum of two shareholders are required.
- Capital: There is no minimum capital requirement.
- Name: The name of the company must be unique and not similar to any existing company name.
Documents Required for Incorporation of Private Limited Company
To incorporate a private limited company in India, the following documents are required:
- PAN card of the proposed directors
- Government ID proof of the proposed directors, such as a passport, voter’s ID, or driver’s license
- Latest bank statement of the proposed directors
- Proof of residence of the proposed directors, such as a bank statement, electricity bill, phone bill, or gas bill
- Passport-sized photograph of the proposed directors
- Specimen signature of the proposed directors (blank document with signature)
- Identity and address proof of the shareholders
- Address proof of the registered office of the company
- MOA (Memorandum of Association) and AOA (Articles of Association)
- DIN (Director Identification Number)
- DSC Registration (Digital Signature Certificate)
- Certificate of Incorporation
PLC or Public Limited Company – Definition
As per the Companies Act, 2013, a public limited company is an organization that offers shares to the general public and has limited liability.
The number of members is unrestricted, but it must be founded by a voluntary association of individuals with a minimum paid-up capital of ₹5,00,000. Shares can be transferred without restriction. The business may issue invitations to the public to subscribe for shares and debentures.
Incorporation Requirements for Public Company
Here are some of the requirements for incorporating a public company in India:
- Directors: A public company must have at least three directors, and at least one of them must be an Indian resident.
- Shareholders: A public company must have at least seven shareholders.
- Authorized capital: A public company must have a minimum capital of INR 5 lakhs.
- Name: The name of the company must be unique and not similar to any existing company name.
Documents Required for Incorporation of Public Limited Company
- Identity proof of the proposed directors (PAN card, passport, voter ID, etc.)
- Address proof of the proposed directors (passport, driving license, Aadhaar card, etc.)
- Proof of registered office address of the company (rent agreement, electricity bill, property tax receipt, etc.)
- MOA and AOA of the company
- Declaration by the proposed directors stating that they are not disqualified to act as directors under the Companies Act, 2013
Key Differences Between Public Companies and a Private Companies
Some of the major differences between the two are discussed below –
- Minimum number of Members Required: Seven shareholders are needed as a minimum to form a public company. Contrarily, a Online Private limited Company can be founded with as few as two members.
- Maximum number of Members Required: The maximum number of people required to form a public limited company is unlimited. Whereas, a private limited company can have a maximum of 200 members.
- Prospectus: In the case of a public corporation, the issuance of a prospectus or statement is required. But, it is not required in a private corporation.
- Certificate of Incorporation: A public company requires a certificate of incorporation, and a certificate of commencement to start a business. On the other hand, a private limited company requires only a certificate of incorporation.
- Transferability of Shares: In a private limited business, the transferability of shares is limited by the Articles of Association. Whereas, members of a public limited company are free to transfer their shares.
- Public Subscription of Shares: Public subscription of shares is allowed in a public limited company. On the other hand, it is not allowed in private companies.
- Director’s Approval: The director’s written permission is required to function as such is needed in a public limited company. On the other hand, no such permission is required in a private limited company.
- Statutory Meeting Required by Law: A statutory meeting for a private limited company is not required. Whereas, a public limited company must conduct such meeting within six months after starting its operations.
- Distinctive Advantages: Special exemptions and benefits are available to private limited companies. On the other hand, a public limited company has no special advantages.
- Minimum Number of Shares Required to Qualify as a Director: A person in a private limited company is exempted from having a minimum number of shares to qualify as a director. But, to be eligible to serve as a director in a public company, a person should have a particular number of shares.
- Articles of Association: Public limited company may or may not have Articles. They can adopt Table-A of the schedule of the Companies Act. On the other hand, a private limited company can have its own Articles of Association. It is not mandatory, though.
- Issuance of Share Warrants: Private limited companies can’t issue share warrants, whereas public limited companies can issue share warrants in case of fully paid-up shares.
- Annual Report: A public company must file an annual report with the Registrar of Companies. Whereas it is not required for a private limited company.
- Directors’ Retirement: At least two-thirds of the directors of a public company have to retire by rotation. No retirement of directors is needed in a private company.
- Managerial Remuneration: The managerial remuneration in a public limited company is subject to regulations. Whereas there is no such limitation for a private limited company.
- Use of Suffix: The word ‘limited’ must be added at the end of the public limited company’s name. For instance, XYZ Limited. On the other hand, the word ‘private limited’ must be added at the end of the private limited company’s name. For example, XYZ Private Limited.
- Quorum for Meeting: There should be a minimum of 5 members to conduct a meeting in a public limited company. Only 2 people are required to conduct a meeting in a private limited company.
- Annual Accounting Audit: The annual reports of the public limited company are open to the public but it is not the same with private limited companies. Only members are allowed to see the Audit annual reports or annual accounts.
- Annual Returns: The private limited company must file a declaration with the Registrar along with its annual return. The declaration must consist of information stating that the numbers of members are 50 or less, and that no share capital or debenture was raised from the public, among other information. Whereas, a public limited company has to submit their annual returns only, and not the declaration as mentioned above.
A Comparative Analysis of a Public Company vs Private Company
Public companies and private companies are two different types of companies that operate in different ways. Here is a comparative analysis between the two:
Ownership: Public companies are owned by shareholders who can buy and sell shares of the company on a stock exchange. Private companies, on the other hand, are owned by a small group of individuals or a single entity.
Disclosure: Public companies are required to disclose financial information to the public, including quarterly and annual reports. Private companies are not required to disclose this information.
Regulation: Public companies are subject to more regulation than private companies. They must comply with securities laws and regulations, as well as other laws that apply to public companies. Private companies are subject to fewer regulations.
Access to capital: Public companies have easier access to capital than private companies. They can raise money by issuing shares of stock to the public. Private companies must rely on private investors or loans from banks.
Examples of Public and Private Companies
Examples of public companies include Apple Inc., Microsoft Corporation, and Amazon.com Inc. These companies are listed on stock exchanges and have a large number of shareholders.
Examples of private companies include Cargill Inc., Koch Industries Inc., and Mars Inc. These companies are owned by a small group of individuals or a single entity and are not listed on stock exchanges.
FAQs:
1. How do mergers and acquisitions differ for public and private companies?
Mergers and acquisitions differ for public and private companies in India. Public mergers and acquisitions are subject to Indian securities laws, while private mergers and acquisitions are not.
2. Are there distinct tax implications for public and private companies in India?
There are distinct tax implications for public and private companies in India. For example, a private resident company is taxed on its worldwide income, while a public non-resident company is taxed only on income that is received in India, or that accrues or arises, or is deemed to accrue or arise, in India.
3. Are there sector-specific considerations in India for public and private companies?
There are sector-specific considerations in India for public and private companies. For example, in the healthcare sector, public-private partnerships are being used to combine India's public-sector hospitals with the private sector's vast resources, required infrastructure and capabilities.
Conclusion:-
These are the differences between public and private companies. Both public and private limited companies have their own advantages and disadvantages. Based on your requirement you can choose them accordingly. If you aren’t sure of what to pick you can always get expert help from us, Vakilsearch.
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