20 Differences between public limited company and private limited company in India

  • Utsav Mishra
  • Jun 18, 2021
  • Business Analytics
20 Differences between public limited company and private limited company in India title banner

Introduction

 

Business in India is like a roller coaster ride. There are different types of businessmen on that ride, all unsure about the future. Every businessman has his own way of coping with the surroundings, every businessman has his own strategy of taking the business forward. As discussing business strategies, read about B2B marketing strategies.

 

Business in India with time is booming and with the rise of different types of business and marketing, we can see new companies being formed and built up.With the increase in no of companies, several other factors get affected too. 

 

We often see companies with names ending with public limited or private limited. Many times we fail to understand what they mean. If they both are companies, then what's the difference? What can be different in two types of companies doing business in the same country?

 

(Must check: Role of technology in Business)

 

In this blog, we will try to understand the difference between these companies ending with different suffixes. We will get to know the difference between a public sector company and a private sector company.


 

What is a Private limited company?

 

A joint-stock company formed under the Indian Companies Statute, 2013, or any prior act is known as a private limited company. The maximum number of members is 200, excluding current workers and ex-workers who were members during their employment or who continue to be members after their work with the firm has ended.

 

The corporation limits public invitations to subscribe for shares and debentures and bans the transfer of shares. It ends its name with the phrase "private limited."

 

 

What is a Public Limited company?

 

A PLC (Public Limited Company) is a joint-stock company created and registered under the Indian Companies Statute, 2013, or any prior act. These companies can be traded publicly, I.e. They are allowed to offer their shares to the public by the stock exchanges.

 

The amount of members the firm can have isn't set in stone. Furthermore, the transferability of the shares is unrestricted. The phrase "Public Limited" is added to the company's name since it can encourage the public to subscribe for shares or debentures.


 

Now that we know what a private limited company and a public limited company is, let us try to find out that on what grounds they are different from each other.

 

 

Private Limited vs Public Limited Company

 

 

  1. Minimum number

 

To start a public limited corporation, at least seven people must be present. A private limited business can be formed with just two people. As the name suggests, public limited companies are bound to have more people in the company as compared to private limited companies.

 

  1. Maximum number of people

 

The maximum number of shareholders in a public limited company is unlimited. In a private limited business, the maximum number of shareholders is two hundred subjected to some orders, excluding the firm's previous and present workers. 

 

A private limited company can sell their stock to an unlimited number of people but when it comes to the public limited companies, the numbers change drastically.

 

  1. The Start of Business

 

To start doing business, a public limited company must obtain both the Certificate of Incorporation and the Certificate of Commencement of Business. To begin the business, a private limited company must get a certificate of incorporation. Only that one certificate will do for a private limited company, unlike the public limited one.

 

(Referred blog: Business Analytics Framework)

 

  1. Subscription minimum

 

Again some things are not the same between these two types of companies. Before issuing shares, a public limited company must have a certain amount of capital. A private limited business, on the other hand, has no such restrictions and is free to distribute shares.

 

  1.  Publication of the prospectus

 

A public limited business can issue shares to the general public. Before issuing shares, it must either issue a prospectus or file a statement in place of a prospectus. 

 

A private limited corporation, by law, has no authority to invite the public to its meetings and, as a result, cannot produce a prospectus. They can't get the public to buy stock in the company. In the meetings of a public limited company, the stockholders take part but the case isn’t the same for the private limited ones as told by law.

 

(Also read: Benefits of Stock Markets)

 

  1. Transfer of shares

 

In a public limited corporation, it is simple to transfer shares. Members' rights to transfer their shares in a private limited corporation are limited by the Articles of Association.

 

  1. Meeting required by law

 

Within six months after the start of operations, a public limited company must conduct a statutory meeting. The statutory report should be filed with the Registrar of Companies. A statutory meeting is not required for a private limited corporation as per the laws made for it.

 

  1. Articles of Association

 

A public limited company may or may not have Articles. It can adopt Table-A of the Schedule of Companies Act. A Private limited company may have its own Articles of Association although it isn’t mandatory for them.

 

(Also read: Business Process Analysis)

 

  1. The number of directors

 

In the management of a public limited corporation, there should be at least three directors. A private limited corporation must have at least two directors to manage the company.
 

  1. Director's approval

 

In a public limited corporation, the directors' written agreement to function as such is required. In a private limited corporation, the powers of directors decrease. For any such thing, the permission of the directors is not required.

 

  1. Shares of qualification

 

To be eligible to serve as a director of a public limited company, a person must own a particular number of shares. The directors of a private limited corporation are exempt from this criterion.

 

  1. Directors' retirement

 

In a public limited corporation, at least two-thirds of the directors must depart from management via rotation. In a private limited business, there is no requirement to retire. This can be because of the less no. of directors as advised by the law.

 

(Recommended blog: What is M-commerce?)

 

  1. The company's name

 

The term "Limited" must be added to the end of the name of a public limited business. The words "Private Limited" must be added to the end of the name of a private limited corporation.

 

  1. Annual Report

 

An annual report must be filed with the Registrar of Companies by a public limited company. For a private limited firm, it is not required. No annual report needs to be filed in the case of it as per law.

 

  1. Issuance of warrants on stock

 

In the case of fully paid up shares, a public limited corporation can issue share warrants. Share warrants cannot be issued by a private limited corporation.

 

(Must read: What is a Unicorn Startup?)

 

  1. Directors' compensation

 

The payment of salary to directors of a public limited company is subject to specific regulations. In a private limited firm, there are no such limitations.

 

  1. Distinctive advantages


A public limited firm has no special advantages. Special benefits and exemptions are available to private limited companies. As a result, Dr. Edward Manson characterises a private corporation as “an incorporated partnership.”

 

  1. Quorum for a meeting

 

A quorum of 5 people is necessary for a meeting of a public business. In the case of a private firm, the quorum consists of two people.

 

  1. Annual accounting audit

 

The Annual Reports are open to the public. A public limited company's accounts are open to the public. Non-members of a Private limited company are not permitted to see the annual accounts.

 

(Referred blog: Business Intelligence vs Data Analytics)

 

  1. Annual Returns 

 

In addition to the annual return, a private company must file a declaration with the Registrar stating that the number of members does not exceed 50, that no share capital or debenture was raised from the public, and that other companies that are members of the company own less than 25% of the company's shares. However, a public business is only required to file the annual return and not the aforementioned declaration.

 

 

Conclusion

 

Both public limited and private limited companies function in their zone. Both have their own rules in this nation and both abide by them and have their share in the economy. 

 

(Related blog: Economic Growth vs Economic Development)

 

As things have been going smoothly, we hope that this smoothness doesn’t come to an end and both types of firms keep functioning in their own zone as told by the law.

Comments