PUBLIC LIMITED COMPANY V/s PRIVATE LIMITED COMPANY

private and public company

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There are various forms of companies as per the Companies Act, 2013 such as a Private Limited Company, a Public Limited Company, One Person Company, Section 8 Company and a Producer Company etc. Each form has a different constitution, the applicability of compliance, benefits and disadvantages. In this article, we shall discuss the most common forms of companies i.e. a private limited company and a public limited company.

A private limited company and a public limited company are similar yet different. The basic model of both forms is the same. However, there are many things which make them different. The difference between a private limited company and a public limited company is as follows:

S Point of Difference Private Limited Company Public Limited Company
  1 Minimum number of members (shareholders) Minimum 2 persons are required to register a private limited company Minimum 7 persons are required to register a public limited company
  2 Maximum number of members (shareholders) A private limited company can have maximum 200 persons as its members There is no such restriction in the case of a public limited company. A public limited company can have an infinite number of members
  3 Number of Directors At least 2 directors are required all the time in a private limited company At least 3 directors are required all the time in a private limited company
  4 Access to public funds A private limited company cannot issue prospectus and take funds from general public A public limited company can issue prospectus and take funds from the general public by  issuing shares
5   Quorum A private company is obligated to have at least 2 members personally present for holding the company meeting. A public limited company is required to have at least 5 members personally present to constitute the meeting
 6 Compliance Lesser compliance applicable in the case of a private limited company More compliance applicable in the case of a public limited company
Suitability Suitable for businesses seeking private investments and have small scale of operations such as start-ups and new businesses. Suitable for businesses seeking public investments and have a large scale of operations such as established business.
8   Initial Public Offerings (IPO) and listing on stock exchanges A private limited company cannot come up with an IPO and get its shares listed on any stock exchanges in India A public limited company can come up with an IPO and get its shares listed on any stock exchanges in India

Apart from above, there are many differences which make both the forms of entities unique. A decision to register a private limited company or a public limited company can be taken on the basis of the points of difference mentioned above and the points given below:

  • Ease of operations: Operations in a private limited company are easily manageable as there are few compliances and more control. Numbers of members and directors are less, thus, decisions in a private limited company can be taken immediately. Generally, members and directors in a private limited company are the same, thus, controlling operations of a private limited company are very easy.
    In the case of a public limited company, the number of compliances is very high. As the shares are issued to many members and the number of directors is more, the decision-making process is generally delayed. Operations become more difficult when a public limited company gets listed as the public gets involved in the decision-making process
  • Documentation:  Requirement of documentation and preparation of reports etc is comparatively lower in the case of a private limited company whereas in the case of a public limited company documentation is generally required to be done daily basis.
  • Compliance: a private limited company enjoys lesser compliances whereas in case of a public limited company many compliances are applicable. Some of them are as follows:
  • In case of a public limited company which is listed on a stock exchange, a report is required to be furnished to Registrar on Annual General Meeting (AGM) within 30 days of conclusion of AGM whereas such Report on AGM is not required to be filed by a private limited company (As per section 121(1) of the Companies Act, 2013).
  • Every listed company, every public company having a paid-up share capital of Rs 50 crore or more; or every public company having a turnover of Rs 250 Crore or more is required to obtain Secretarial Audit Report form independent practicing company secretary (As per Section 204 of the Companies Act, 2013) whereas there is no such requirement in the case of a private limited company.
  • Relaxation from Appointment of Independent Director-As per the second proviso to section 149(1) of the Companies Act, 2013 every listed company and every public company having paid up share capital Rs. 100 Crore or more or having turnover of Rs. 300 Crore or more shall appoint at least one women director whereas the appointment of women director is not mandatory for a private limited company.
  • Relaxation from the appointment of Independent Director- As per section 149(4) of the Companies Act, 2013 every listed public company shall have at least one-third of total numbers of Directors as Independent Director and every public company having paid up share capital Rs. 10 Crore or more or turnover Rs. 100 Crore or more or having in aggregate outstanding loans, debentures and deposits exceeding Rs. 50 Crore or more shall have at least 2 directors as an independent director. There is no such requirement in case of a private limited company. 
  • As per section 177 of the Companies Act, 2013 every listed public company and every public company having paid up share capital Rs. 10 Crore or more or turnover Rs. 100 Crore or more or having in aggregate outstanding loans, debentures and deposits exceeding Rs. 50 Crore or more shall Constitute an Audit Committee & Nomination and Remuneration committee of the board whereas a private limited company is not required to constitute the same.
  • Relaxation from constituting Stakeholder Relationship Committee – Every company having more than 1000 shareholders, debenture holders, deposit holders any other security holders at any time during the financial year shall constitute stakeholders Relationship committee. This provision is not applicable on a private limited company.
  • There are many other compliances which are applicable on a public limited company only. Therefore, a private limited company enjoys less compliance.
  • Reduced statutory fees: In case of a small private company, the statutory fee for filing e-forms of a small private limited company on the website of the Registrar of Companies (ROC) i.e. www.mca.gov.in is lesser than the statutory fee for filing e-forms of a public limited company. Thus, the compliance cost is lower in the case of a private limited company.
  • Relaxation in certification requirements: ROC e-forms are required to be certified by a practising professional (such as CA, CS and CMA). In case of small private limited companies, there is no such requirement and the forms can be filled by appending digital signatures (DSC) of directors only whereas in case of a public limited company, certification is mandatory. Thus, there is no cost for certification in the case of a private limited company.

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