Public and Private Limited Company

There are many types of companies, but mainly private limited and public limited are the types of company. The public company means those companies traded publicly in terms of security and recognized stock exchange. The private limited company is the one that is not listed in the stock exchange, and its security is held by its members of the organisation privately. Before knowing about entrepreneurship, it is essential to know about the types and best suitable kind to start a business. 

There are differences between a private limited company and a public limited company. The difference between a private limited company can provide explicit knowledge of each type of company and its advantages and disadvantages. This chapter is specially designed to make the differences between private and public companies understandable. 

Public limited company 

According to the Companies’ Act 2013, a public limited company is not private. This means a public limited company is a joint-stock company governed by the provision of the Indian Companies’ Act 2013. There is no limit to the number of members, and it is formed by an association where people are voluntarily paid up to five lakhs rupees capital. There is no restriction in transferability, and in time of incorporation, the term public limited is added to its name. A public limited company offers shares to the public. It is more open to the public about its details and also listed in the stock market. 

Private limited company 

According to the Companies’ Act 2013, private companies are restricted from transferring their share. In simple words, a private limited company is a joint-stock company governed under the Indian Companies’ Act 2013. It has limitations in the number of members. Still, the voluntary association of the company should be paid a minimum of 1 lakh rupees capital. The maximum number of members should be 200, and it does not include current or ex-employees who are not listed in the employment term. Employees are allowed to continue as a member after the termination of employment in the company. There is a restriction in transferring the shares. The term private limited is used in the name of the company. 

Difference between private and public company

The definition of these two types of companies shares a basic difference between private and public companies. Here is a detailed discussion to elaborate on the differences.

• A public limited company is listed on a recognized stock exchange, and the company’s stocks are traded publicly. On the other hand, private limited companies are neither listed in the stock exchange, nor they can be traded. Its members can only hold it. 

• A public company requires a minimum of seven members to start a company, whereas a private limited company can be started with only two members.

• A general meeting is mandatory for public companies, whereas for private companies, it is not mandatory. 

• Transferability of shares is restricted for private companies, but for a public company, the shares can be transferred to the public. 

• There is a tremendous regulatory burden on the public limited company, whereas the private company has no burden. 

• Public companies mandatorily choose a company secretary, but the private companies can appoint by choice.  

• The minimum capital for a public company is 5 lakh rupees, but it is only 1 lakh rupees in a private company. 

• There is no limitation on the membership of a public company, but private companies have only a 200 members allowance. 

Advantages and disadvantages of each company

Public company advantage

• Directional insights from stakeholders

• Reduction in personal liabilities

• Improve branding and reputation

• Corporation link improvement and alternate growth

• Raise capital through public buyers

Public company disadvantage

• Potential loss of control

• A different direction for the business

• Stock market vulnerability

• Increase legal implication 

Private sector advantages

• No minimum capital

• Limited liabilities

• Easy fundraising

• Easy shares transfer

• Uninterrupted existence

• Credibility building

Private sector disadvantages

• Restricted transferability in shares

• The number of shareholders cannot be exceeded 50

• It cannot use the prospectus to the public

• Stock exchange share cannot be quoted

Conclusion

The difference between private and public companies reflects the concept of these two types of companies. It can be determined easily that a private limited company is a better option to start a new business journey than a public limited company. Though both the companies have their restrictions, in terms of profitability, private limited companies can serve as a better result in entrepreneurship. There are also limited requirements to start up a new private limited company. A minimum of two people can accompany, and two directors can work in this. It can allow stakeholders and shareholders to be natural persons or artificial legal entities. These notes on the difference between a private limited company and a public limited company have produced genuine knowledge on the concept, which will help to understand and learn entrepreneurship properly.