Company law in India allows registration of different types of companies such as Section 8 Company, Nidhi Company, Producer Company, etc. However, on the basis of ownership, companies are classified into two types: Private Limited Company and Public Limited Company. This article highlights the major differences between Private Limited and Public Limited Company in India. 

Before discussing the major differences, let us understand what is a company. 

What is a Company?

A company is a popular form of business organization in India. It is a legal entity separate from its members or owners. Therefore, a company can own assets and can enter into contracts on its own. Companies Act, 2013 governs companies in India. 

Meaning of Private Limited Company and Public Limited Company

Private Limited Company

Private Limited Companies are formed by businesses that choose to operate on a small scale. Generally, such companies are owned by members of the same family. 

According to Section 2(68) of the Companies Act, 2013, a Private Company means a company that has a prescribed minimum paid-up share capital and certain restrictions in its Articles of Association (AOA). Such companies cannot have more than 200 members (except OPC) and cannot raise funds from the public by listing their shares on the stock exchange. In addition, shares of private companies are not freely transferable. 

Also, it should be kept in mind that the above-mentioned limit of 200 members does not include past and present employees of the company who owns its shares. 

Read more: Private Limited Company Registration Online in India 

Public Limited Company

Public Limited Companies are large companies and generally involve huge amounts of capital. 

According to Section 2 (71) of the Companies Act, 2013, a Public Company is a company that has a prescribed minimum paid-up share capital and that is not a private company. Therefore, as compared to a Private Limited Company, there are no limitations and restrictions in the case of a Public Limited Company. 

Deemed Public Company

A subsidiary of a public company is also considered a public company even if it is a private company. Therefore, such a subsidiary is known as Deemed Public Company. 

Note: Currently, no minimum paid-up share capital is prescribed in the rules for companies. The earlier limits of Rs. 1,00,000 in the case of a Private Limited Company and Rs. 5,00,000 in the case of a Public Limited Company have been omitted by the Companies (Amendment) Act, 2015 dated 29th May 2015. 

Difference between Private Limited and Public Limited Company

There are many differences between a Pvt Ltd Company and Public Ltd Company. The following table highlights the major differences between private and public limited company. 

Basis of DifferencePrivate Limited Company Public Limited Company 
Number of Directors A Private Limited Company shall have a minimum of 2 directors. However, it can have a maximum of 15 directors. A Public Limited Company shall have a minimum of 3 directors. However, it can have a maximum of 15 directors. 
Number of Members A Private Limited Company shall be formed by a minimum of 2 members. Maximum there can be 200 members. A Public Limited Company shall be formed by a minimum of 7 members. There is no upper limit on the number of members in the case of such companies 
Share Transferability Shares of a Private Limited Company can be transferred, but subject to certain restrictions. Shares of a Public Limited Company are freely transferable. 
Raising Funds from the Public A Private Limited Company cannot raise funds from the public by issuing a prospectus. A Public Limited Company can raise funds from the public. 
Participation of Interested Director in Board Meeting In the case of a Private Limited Company, an interested director can participate in the Board meeting after disclosure of his interest in the items of business. In the case of a Public Limited Company, an interested director cannot participate in the Board meeting in the items in which he is interested. 
Requirement of Independent Director, Audit Committee, and Nomination and Remuneration Committee It is not mandatory for a Private Limited Company to appoint an independent director to its Board. 

Also, a Private Limited Company is not required to constitute an Audit Committee and Nomination and Remuneration Committee. 

It is mandatory for the following public companies to appoint at least 2 independent directors on its Board – 

  1. Companies having paid-up share capital of Rs. 10 crores or more; or 
  2. Companies having a turnover of Rs. 100 crore or more; or 
  3. Companies having borrowings in excess of Rs. 50 lakhs. 

in the immediately preceding financial year. 

Above mentioned companies shall also constitute an Audit Committee and a Nomination and Remuneration Committee. 

Requirement of Women Director and Resident Director It is not compulsory for a Private Limited Company to appoint a women director. However, it shall have a resident director. 

Note: The resident director is a director who stays in India for a minimum period of 182 days during the financial year. 

A Public Limited Company shall have a Women Director in the following cases – 

  1. Its paid-up share capital is Rs. 100 crores or more; or 
  2. Its turnover is Rs. 300 crores or more 

in the immediately preceding financial year. 

Moreover, every public company shall have a resident director. 

Voting Rights of Preference ShareholdersA Private Limited Company can determine the voting rights of its preferred shareholders via Memorandum or Articles of Association. In the case of a Public Limited Company, every preference shareholder shall have a right to vote only on the following resolutions –

  1. Resolutions that affect their rights. 
  2. Resolution for winding up of the company. 
  3. Resolution for repayment or reduction of the share capital of the company. 
Buyback of Shares A Private Limited Company can buy back its own shares if it fulfills the following conditions – 

  1. A body corporate has not invested money in the share capital of the private company; and
  2. Borrowings from banks or financial institutions or any body corporate are less than twice the paid-up share capital or Rs. 50 crore, whichever is lower; and 
  3. Such a private company has not made a default in repayment of borrowings subsisting at the time of purchase of its own shares.
A Public Limited Company can buy back its own shares only if it reduces its share capital as per the provisions of the Companies Act, 2013. 
Acceptance of Deposits from Members There is no limit on acceptance of deposits from members by a Private Limited Company if – 

1) It is a start-up (but only up to 10 years from the date of incorporation); 

2) It satisfies all of the following conditions – 

  1. Such a private company is not an associate or subsidiary of another company; and 
  2. Borrowings from banks or financial institutions or any body corporate are less than twice the paid-up share capital or Rs. 50 crore, whichever is lower; and 
  3. Such a private company has not made a default in repayment of borrowings subsisting at the time of accepting deposits. 
A Public Limited Company can accept deposits from its members only if it fulfills all of the following conditions – 

  1. The Company issues a circular in form DPT-1 to its members; 
  2. It files form DPT-1 with the ROC within 30 days before the date of issue of circular  to members;
  3. The Company deposits at least 20% of the amount of maturing deposits in the next financial year in a separate bank account on or before 30th April; 
  4. It certifies that it has not committed a default in repayment of deposit or payment of interest thereon; and
  5. The Company provides security for repayment of existing deposits or payment of interest thereon, obtains credit rating, and creates charges if required. 
Appointment of Two or more Directors through a Single Resolution A Private Limited Company can appoint two or more directors through a single resolution without any restriction. A Public Limited Company can appoint two or more directors through a single resolution only if such a proposal is agreed to by all the members at a general meeting. 
Loan to Directors A Private Limited Company can advance a loan to its directors if – 

  1. A body corporate has not invested money in the share capital of the private company; and
  2. Borrowings from banks or financial institutions or any body corporate are less than twice the paid-up share capital or Rs. 50 crore, whichever is lower; and 
  3. Such a private company has not made a default in repayment of borrowings subsisting at the time of purchase of its own shares.
A Public Limited Company cannot advance a loan to its directors. 
Appointment of Key Managerial Personnel It is not compulsory for a Private Limited Company to appoint Key Managerial Personnel. 

However, if the paid-up share capital of a Private Company is Rs. 10 crores or more, it shall have a whole-time Company Secretary. 

Key Managerial Personnel includes: 

1) Managing Director/ CEO/ Manager/ Whole-Time Director;

2) Company Secretary;

3) Chief Financial Officer 

It is compulsory for a Public Limited Company to appoint Key Managerial Personnel if its paid-up share capital is Rs. 10 crores or more. 
Quorum for General Meeting In the case of a Private Limited Company, 2 members present personally form a quorum for a general meeting. In the case of a Public Limited Company, quorum depends on the total number of members in a company. 

1) If the total number of members is ≤ 1000, the quorum shall be 5 members.

2) If the total number of members is more than 1000 but ≤ 5000, the quorum shall be 15 members.

3) If the total number of members is> 5000, the quorum shall be 30 members.  

Rotation of Directors Provisions of rotation of directors are not applicable to a Private Limited Company. In the case of a Public Limited Company, 2/3rd of the total number of directors are liable to be retired by rotation every year. 
Use of Suffix A Private Limited Company shall use the suffix ‘Private Limited’ in its name. A Public Limited Company shall use the suffix ‘Limited’ in its name. 
Restriction on Managerial Remuneration There is no restriction on remuneration paid by a Private Limited Company to its Managing Director/ Manager/ Whole-Time Director. The overall remuneration paid by a Public Limited Company to its Managing Director/ Manager/ Whole-Time Director shall not exceed 11% of the net profits of the company in a particular financial year.  

Public Limited vs Private Limited Company: Which is Better?

Now that we have considered various differences between Private Limited Company and Public Limited Company, the question arises of which type of company is better. Well, it depends on several factors and the pros and cons of both types of companies. The following points can be considered in this regard – 

  1. A Private Limited Company is suitable for small-scale businesses that involve less amount of capital and fewer people to manage. 
  2. A Public Limited Company is suitable for large businesses that involve huge capital, use of heavy machinery, more people to manage, etc. 
  3. Company law in India provides for lesser compliance for Private Limited Companies as compared to Public Limited Companies. Therefore, the compliance costs of public companies are higher. 
  4. There are limited chances of expansion for a Private Limited Company as it cannot raise funds from the public. 
  5. Public Limited Companies have endless chances of expansion as such companies can list their shares on the stock exchange and hence, raise funds from the public. 
  6. Public Limited Companies can get easier brand recognition as compared to Private Limited Companies. 

Therefore, while selecting a type of company from a Private Limited Company or Public Limited Company, it is necessary to consider different factors and weigh the advantages and disadvantages of both types of companies. 

Looking to Register a Company in India?

Company registration is a complex process and requires several documents. Therefore, it is always advisable to take the help of experts as it makes the process simpler and easy-going. 

Are you also looking to register a company in India and start a new business? Well, you are at the right place! Connect with our experts who will guide you in detail about the registration of a company and the type of company you should select based on your requirements. 

Conclusion

Both types of companies, Private Limited Company and Public Limited Company, have several points of difference. However, while making a decision, one should consider other factors and pros and cons as well.

We at Registration Arena are dedicated to assisting you in the registration of your company. Also, our experts can also help you in complying with all the regulatory requirements. For more information, you can Call/WhatsApp us at +91 8600544411 or write to us at support@registrationarena.com.