A company is a voluntary association of individuals formed to attain common objectives. It is a separate legal entity, i.e., the corporation and its members are two distinct individuals in the legal sense. When deciding on stocks to buy today, it is essential to know this basic differentiation.
Private limited company
A private limited company is formed and incorporated under the Companies Act, 2013 or any other law in place at the time. It’s a corporation whose shares aren’t traded publicly and aren’t listed on a stock market. The company’s liability is restricted to the number of shares it owns.
Public limited company
A public limited company, or PLC, is a joint-stock corporation established and incorporated under the Companies Act, 2013 or any preceding legislation. To raise funds from the larger public, it is listed on a stock market for the masses to invest in. It is a limited-liability corporation that is permitted to issue registered securities, such as shares and debentures, to the general public.
What is the difference between private and public companies in India?
| Basis | Private company | Public company |
| Transferring shares | Due to the restrictions in the articles of association, private company shares are not readily transferable. | A public company’s shares are freely transferable, meaning they can be traded on a public stock exchange. |
| Public subscriptions | The public issuance of shares or debentures is forbidden. | It can issue shares and debentures to the general public. |
| Minimum number of directors | 2 | 3 |
| Number of members | 2 to 200 | 7 to unlimited |
| Issuing prospectus | Restricted from issuing a prospectus. | It has the option of issuing a prospectus or opting for private placement. |
| Articles of association | It will have to develop its articles of association. | It can either develop its articles of association or use table F of the Companies Act, 2013. |
| Business commencement | Can commence immediately on receiving the Certificate of Incorporation. | Needs a Certificate of Commencement after being incorporated. |
| Appointing directors | A single resolution can nominate two or more directors. | A single resolution can nominate just one director. |
| Consent filing by directors | Does not need their filing of consent to act as a director. | Directors have to file their consent with the registrar within 30 days of being appointed. |
| Retirement of directors by rotation | Can be permanent and don’t need to necessarily retire by rotation. | 2/3rd of the directors have to retire by rotation. |
| Statutory meeting | Optional | Compulsory |
| Exemptions | Has many exemptions and benefits. | Has no particular exemptions and privileges. |
| Minimum allotment amount | Without a minimum subscription, the corporation can allocate shares. | Until the minimum subscription amount specified in the prospectus is met, the company can’t allocate shares. |
| Location for Annual General Meeting (AGM) | Can hold the AGM at any place. | Needs to hold the AGM at the registered office. |
Conclusion
Both these types of companies operate in their individual capacities. They have their own set of rules in the country in which they are established. A private company may not be listed on the stock market today. But they can be converted to a public company by making their shares available on the stock market at any time in the future if they meet the requirements.
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