What is a Private Limited Company and a Public Limited Company?
Let us have a brief understanding of what is private and public limited company.
Private Limited Company
A company that is privately held for small businesses. The liability of the members of a private limited company is restricted to the number of shares respectively held by them. The shares of a private limited company can’t be traded.
Public Limited Company
A company whose shares are traded on a stock exchange and can be purchased and traded by anyone. It is also called a publicly held company. A public limited company, as the name signifies that the business offers shares to the public. A public limited company under the company’s Act 2013 is a company that has limited liability and offers shares to the general public. Its stock can be acquired by anyone, either privately through (IPO) Initial Public Offering or through trades on the stock market.
Benefits of a Public Limited Company
Quick Share Transfer
Shareholders of a public limited company can transfer their shares with great ease. All they need to do is file the share transfer form and hand over the share certificate to the buyer. The process of transferring a share to another business structure is very tedious.
The advantage of the public limited structure is that you can leverage it to raise capital from the general public through shares. This would, however, require listing on a stock exchange. All public limited companies can issue fixed deposits, debentures, convertible debentures to the general public.
Public limited companies need to disclose their audited statement of accounts, inform the regulatory bodies of any structural change, and hold annual general body meetings for all shareholders. These compliance procedures bring a great deal of credibility to the organization.
Checklist requirements for conversion of a public limited company
- DSC (Digital Signature Certificate) and DIN ( Director Identification Number ) of two directors.
- Preparation of MOA ( Memorandum of Association ) and AOA ( Articles of Association).
- PAN ( Permanent Account Number ) and TAN ( Tax Deduction and Collection Account Number) card.
- Name search, application and name reservation.
- CIN (Certificate of Incorporation).
Here are some features that differ a private limited company from a public limited company:
|Features ||Public Limited Company ||Private Limited Company |
|Minimum members ||7 ||2 |
|Minimum directors ||3 ||2 |
|Maximum members ||unlimited ||200 |
|Minimum capital ||5,00,000 ||1,00,000 |
|Invitation to public ||Yes ||No |
|Issue of prospectus ||Yes ||No |
|Quorum at AGM ||5 members ||2 members |
|Certificate for commencement of business ||Yes ||No |
|A term worked at the end of the name ||Limited ||Private limited |
|Managerial remuneration ||No restriction ||Must not exceed more than 11% of net profits |
|Statutory meeting (mandatory) ||Yes ||No |
Private Limited Company Vs Public Limited Company
- A public limited company is a company listed on a recognized stock exchange and the stocks are traded publicly. Whereas, a private limited company is neither listed on the stock exchange nor traded. It is privately held by its affiliates.
- A minimum of 7 members is required to start a public limited company. But, a private limited company can be started with a minimum of two members.
- A public limited company has a compulsion to call a general body meeting of members. Here, there is no such compulsion in the case of a private company.
- In a public limited company, the issue of prospectus or statement is mandatory. However, this system is not for a private company.
- A public limited company demands the certificate of commencement, post-incorporation, to start its operation. In contrast to this, a private company can start its business after its incorporation.
- The transferability of shares is restricted completely in private limited companies. While the shareholders of a public company can transfer their shares freely.
- Since there are fewer people and few restrictions, the scope of a private limited company is restricted. On the contrary, the scope of a public company is vast. This is because the owners of the company can increase the capital from the global public and have to abide by many legal constraints.
- There is a greater regulatory responsibility for a public limited company. More information has to be given to the public who are shareholders or prospective shareholders. Substantial investment has to be made to provide reports and declarations that meet the directions provided by SEBI.
- A signified written resolution is supported, by including general meetings of a private limited company.
- While public companies must appoint a company secretary, private companies may choose to do only at their will.
What is the process of converting privately limited to a public limited company?
A company already enrolled in a class may change itself as a company of another class by modification of memorandum and articles of the company. An application in this regard is required to be made to the registrar. The registrar after being convinced that all steps comply with the requirements, then it shall close the former registration of the company. After registering the documents related to the conversion, the Registrar shall issue a certificate of incorporation. The transformation of a company shall not assume any debt, claim, liabilities, and obligations. Such debt, liabilities, and contracts may be enforced and executed as if there is no such exchange.
- Calling of Board Meeting: Issue notices according to the provisions of section 173(3) of the Companies Act, 2013, for converting a meeting of the Board of Directors. The main objective of this Board meeting would be:
- Pass a board resolution to get in-principal permission of directors for the conversion to a public company from a private limited company by altering the AOA(articles of association).
- To get the approval of shareholders, fix the date, time and place for holding an Extra-ordinary General meeting (EGM) , by way of Special resolution, for converting a private company into a public company.
- To approve the notice of EGM with agenda and statement to be added to the notice of General Meeting, as per section 102(1) of the Companies Act, 2013.
- To delegate the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM) as recommended by the board under article 1(c) mentioned above.
- Pass Board resolution for an increase in the number of directors up to 3, if the number of directors is less than 3.
- Issue of EGM Notice: Issue Notice of the Extra-ordinary General Meeting (EGM) to all members and affiliates, directors and the auditors of the company following the requirements of Section 101 of the Companies Act, 2013.
- The holding of EGM meeting: It holds the Extra-ordinary General meeting on the due date, and transfers the required Special Resolution, to get the shareholder’s support for conversion of private company into a public company along with alteration in articles of the agreement, under section 14 for such conversion.
- Registrar of Company(ROC) filing: For alteration in the Article of Association for the conversion of a public limited company under section 14, few E-forms will be filed and registered with the concerned Registrar of Companies at different stages as per the details mentioned ;
- E-form- For filing special resolution with ROC, passed for conversion of private company into a public company.
- In case of modification in Article of Association for the conversion to a public company special resolution, it requires to be passed under section 14. According to section 117(3)(a), a copy of this special resolution is expected to be filed with the concerned ROC through the filing of form MGT.14 within 30 days of passing the resolution in the EGM.
- According to Rule 33 of Companies (Incorporation) Rules, 2014, for converting a private company into a public company, the application shall be listed in Form No. INC-27 with the fee. Moreover, the conversion of the company is to be registered in e-Form INC.27 to the ROC involved, with all the required annexures and with the prescribed fee.
- As per section 18, after receiving the documents for the conversion of a private limited company into a public limited company, ROC shall convince itself that the company complies with the necessary provisions for registering a company. If so convinced, ROC (Registrar of Companies) shall enclose the previous registration and issue a fresh certificate of incorporation, after registering the documents presented for change under the specific class of the company.
Documents needed for conversion of private limited into a public limited company
- A copy of the directors’ PAN card.
- Passport size photographs of directors.
- Copy of Aadhar card or voter ID.
- Copy of the rental agreement.
- Electricity or water bill (Business place).
- The copy of property papers, if it is owned.
- Landlord NOC (No Objection Certificate) for providing the format.
- A director’s salary.
- Issuing dividend payments from available profits.
- Taking money out of a limited company, as a director’s loan.
- Claiming expenses for business-related items.
A limited liability company is a very tax-efficient business structure because limited companies pay corporation tax on their profits, of a flat rate of 19%. Directors can then minimize their personal tax and national insurance contributions by paying themselves a mixture of salary and dividends.
Shareholders are the owners of a public limited company, but they elect a board of directors who manage and make decisions on behalf of the business.
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