KINDS OF COMPANIES IN COMPANY LAW : Statutory companies, chartered companies, registered company, foreign companies, investment companies, one person company, public company, private company etc.
QUESTION: Bring out the main points of difference between private ltd. Company and public limited company?
ANSWER:
PRIVATE COMPANY: Section 2(68) of the Companies (Amendment) Act, 2015 defines a Private Company as a company which has a minimum paid up capital as may be prescribed, and by its articles:
(i) restricts the rights of its members to transfer of share, (if it has any);
(ii) except in case of one person company, limit the number of its members to two hundred (200), which does not include.
(a) members who are the employees and members of the company.
(b) members who, while they were employees of the company, were also it members and continue to be its members after leaving its employment.
Where two or more persons hold one or more shares in a company jointly. They for the purposes of this clause be treated as a single member.
(iii) prohibits any invitation to the public to subscribe for any securities of the company.
PUBLIC COMPANY: According to Section 2(71) of the Companies (Amendment) Act, 2015 public company’ means:
(i) A company which is not a private company.
(ii) has a minimum paid up capital as may be prescribed.
A company which is a subsidiary of a company, not being a private company, shall be deemed to be a Public Company for the purposes of this Act even where such subsidiary continues to be a private company in its articles.
Thus, a public company may be said to be an association consisting of not a Private Company within the meaning of the Act. The shares and debentures of a Public Company may be listed on a Stock Exchange and are offered to public for sale.
DIFFERENCE BETWEEN PUBLIC COMPANY AND PRIVATE COMPANY
| Basis of Difference | Private Company | Public Company |
| Number of members | The minimum number of members is 2 and the maximum number of members excluding the present and past employees is 200. | The minimum number of members is 7 and the maximum can be as many as the number of shares of the company. |
| Invitation to Public | A private company cannot invite the public to invest in its shares. It needs to arrange the required capital from its own sources. | A public company arranges the total capital requirement from the public. To do that, it invites the public to invest in its shares and debentures. |
| Allotment of shares | A private company can allot shares immediately on the receipt of the incorporation certificate. | A public company cannot allot its shares to the public. |
| Commencement of business | A private company can commence its business immediately on the receipt of the certificate of incorporation. | A public company cannot commence its business so long as it gets an official letter of commencement to do so. |
| Issue of prospectus | A private company cannot issue a prospectus or a statement in lieu of prospectus. | It is mandatory for a public company to issue a prospectus. In the absence of a prospectus, it is necessary to issue a statement in lieu of prospectus. |
| Transfer of shares | The transfer of shares is restricted to a specified limitation. | The transfer of shares is not restricted and it is at the will of the shareholders. |
| Preparation of Articles | Preparation of articles is mandatory for a private company. | Preparation of Articles is not compulsory in a public company. In case the Articles are not registered, the provisions of Schedule 1A Table shall be applicable. |
| Issue of bearer share warrant | A private company cannot issue a bearer share warrant. | A public company may issue bearer share warrants if the shares of the company are fully paid-up. |
| Number of directors | There must be at least two directors. | There must be at least three directors. |
| Qualification shares | It is not mandatory for the directors to have qualification shares in a private company. | It is mandatory for the directors of a public company to have qualification shares. |
| Increase in number of directors | A private company can increase its number of directors without the permission of the government. | A public company cannot increase the number of its directors without the permission of the Central Government. |
| Loan to directors | It is not necessary for a private company to get prior permission of the Central Government to give loan to its directors. | Prior permission of the Central Government is necessarily required for a public company to give loan to its directors. |
| Retirement of directors by Rotation | It is not required by the law for the directors of a private company to retire by rotation. | One-third of the directors of a public company are required to retire by rotation. |
| Filing of documents | A private company need not to submit the following documents to the Registrar of the Companies: (a) list of directors; (b) consent of directors; (c) copy of any contract with the directors. | For the incorporation of a public company, it is compulsory to file these documents with the Registrar of companies. |
| Share Capital | The minimum paid up share capital should be ₹1,00,000. | The minimum paid-up share Capital should be ₹5,00,000. |