Private Vs Public Companies In India

Companies in India can be categorised on various bases, such as liability of members, ownership and control, mode of incorporation, number of members and transferability of shares, etc. Based on the number of members and transferability of shares, the companies can be categorised as private limited and public limited.

This article talks about the meaning of a company, what a private company is, its advantages and disadvantages, what a public company is, its advantages and disadvantages, and public limited vs private limited companies.

What Is A Company?

As per the Companies Act, 2013, a company means any organisation incorporated under this or any previous company law.

A company is a legal entity created to carry out a business by a group of people who work towards achieving common objectives.

What Is A Private Company?

As per the Companies Act, 2013 [Section 2(68)], a private company is a company having a minimum paid-up share capital of ₹1,00,000 and which, by its articles,

(i) restricts the right to transfer its shares;

(ii) except in the case of One Person Company, limits the number of its members to two hundred,

(iii) prohibits any invitation to the public to subscribe to any securities of the company.

However, it is a technical definition. Simply put, a private company does not allow the general public to subscribe to its shares or any other securities; instead, it raises the required funds from fewer investors. Its shares are not freely transferrable.

Private companies have ‘Private Limited’ as a suffix in their names. A few examples of private limited companies in India are Paypal Payments Private Limited, PhonePe Private Limited, Bundl Technologies Private Limited (Swiggy), etc.

Private Company: Advantages And Disadvantages

Advantages	Disadvantages
Limited liability of members	Restrictions on transfer of shares
Lesser regulatory requirements	Can’t invite the general public to subscribe to its securities
Relatively easier decision making	Difficult to raise a large amount of funds

What Is A Public Company?

As per the Companies Act, 2013 [Section 2(71)], a public company 

(i)  is not a private company;

(ii) has a minimum paid-up share capital of ₹5,00,000

Simply put, a public company is a company that allows the transfer of shares and allows the public to subscribe to any securities it issues.

Public companies have ‘Limited’ as a suffix in their names. Some examples of public limited companies in India are Reliance Industries Limited (RIL), Bharat Heavy Electricals Limited (BHEL), Infosys Limited, etc.

Public Company: Advantages And Disadvantages

Advantages	Disadvantages
Ability to raise a significant amount of capital	More strict regulatory requirements
Better opportunities for growth	Ownership and control spread among a massive number of shareholders
Popularity in the market	–
Easy transferability of shares	–

Differences Between Private And Public Companies

Here are the differences between private and public companies in table form.

Point of difference	Private Company	Public Company
Raising funds	It can raise funds from a limited number of investors.	It can raise funds from the general public by issuing securities to them.
Minimum paid-up capital	₹1 lakh	₹5 lakh
Minimum and maximum number of members	Minimum – two members maximum – two hundred members	Minimum – seven members maximum – no such limitations
Minimum number of directors	At least two directors	At least three directors
Transfer of shares	Shares are not freely transferable.	Shares are freely transferable and tradable through the stock exchange.
Valuation	Arriving at the valuation is relatively difficult.	Arriving at the valuation is easier as its financial statements are published.
The extent of regulatory requirements	Fewer and less complex	More and complex statutory, legal and other regulatory requirements
Commencement of business operations	Need to receive a Certificate of Incorporation before starting business operations.	Need to receive a Certificate of Commencement before starting business operations.
Suffix	Private Limited	Limited
Issue of share warrants	Not allowed	Allowed
Issue of prospectus	Optional	Mandatory
Public disclosure of financial statements	Doesn’t need to publish its financial information in public domain.	Need to publish its financial statements publicly.
Managerial remuneration	No such restrictions.	The total managerial remuneration should not exceed 11% of the company’s net profit for that financial year.
Statutory meeting	Voluntary	Mandatory
Minimum number of members in AGM	At least two members.	As provided by articles of association. If not mentioned, at least five members.

Conclusion

Private limited and public limited companies significantly differ from each other. Both kinds of companies carry their own advantages and disadvantages. A private company can go public by carrying Initial Public Offering (IPO), thereby offering its shares to the general public. Even a public company can again go private if private investment groups buy enough stake, for example Twitter.

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