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.
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
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.
