Public company and private company are the two most common types of companies. They are two very important company types. Almost all of the corporate giants exist in one form or the other. Hence, it becomes very necessary for us to acquaint ourselves with them. It is important to know what they are individually before we dive in with the difference between public company and private company.

Public Company

A public company is one which invites the public to subscribe to its shares. It may or may not be listed on an exchange. Since it invites the public to subscribe, it has to issue a prospectus. It also publishes its annual reports in the public for them to access. It is also known as a publicly held company, publicly traded company and public corporation. In practice, private companies which require more capital than their existing business structure can offer convert themselves into public companies. The other way (i.e., Public Limited Company wants to convert itself into Private limited Company) around happens when the company wants to get delisted and reacquire its privacy. Some of the features of Public limited company are as follows:

  • They can raise huge amounts of capital with much ease.
  • They are more popular than their private counterparts since there shares are regularly traded. Also, because people have an economic interest in their performance.
  • These companies can allot shares to their employees with much ease. In the process they make them part owners of the business. This motivates them to work harder.
  • Minimum of 7 members are required while there is no upper limit
  • They have more formalities and regulatory requirements to comply with.

 

Difference between Public company and Private company

Private company

A Private company is one which does not invite the public to subscribe to its shares. It has a limited number of shareholders. Since it does not seek public subscription it does not file prospectus. Its shares can be held by individuals as well as companies. It does not have a minimum capital requirement. This means that it can be incorporated easily.

  • A Private Company cannot accept deposits from public. But, it can convert itself into Private limited company.
  • It must have a minimum of 2 members and a maximum of 200 members
  • There is no minimum paid-up capital requirement
  • The transferability of shares is restricted
  • A private company whose holding company is public will be considered/deemed as public company

 

What is the difference between Public company and Private company

Difference between Public company and Private company

 

Basis Public Company Private Company

Subscription

The public can subscribe to its shares Since it does not invite the public for subscription, they cannot subscribe to its shares

Minimum no. of members

7 2

Maximum no. of members

No limit 200

Annual reports

Publicly published The public does not have access to its financial statements

Transferability

Freely transferable Cannot be transferred without the consent of the existing members

Compliance

It has more compliance It does not have much compliance

Convertibility

It can be converted into a private company though the process is often long and requires the major shareholders to buy out all the shares It can be converted into a public company and the process is comparatively easy

Nomenclature

Shall use ‘Limited’ after its name Compulsory to use ‘Private Limited’ after its name

No. of Directors

Minimum 3 Minimum 2

Prospectus

Compulsory to issue prospectus Not compulsory to issue prospectus

Statutory Meeting

Compulsory to call a statutory meeting It is optional to call a statutory meeting

Preliminary Formalities

Requires declaration of commencement Requires Declaration of commencement

Quorum of AGM

Minimum 5 members must be present in person Minimum two members must be present in person

Restriction on Managerial Remuneration to Managing Director and Whole Time Director

Applicable Not applicable

Eligible for status of “small company”

No Yes

Conclusion

Both Private Companies as well as Public Companies form the majority of the corporate structures. It is important for us to understand both of them as they are on their own and also analyze the details that set them apart. The incorporation process for both of them is a little troublesome and we here at Registration Arena work towards eliminating the hassle and making it a swift process. Reach out to us to incorporate your own Public or Private company.