Differences Between a Public Company and a Private Company

Difference between Public Company and Private Company

Everything you need to know about the key differences between public company and private company. Public Company means which is formed with minimum of seven members and three Directors. There is no restriction on maximum number of members.

The name of the company shall end with the word ‘Limited’ which is not a private company. Public Limited Company means a Company which is not a private limited Company and has a minimum Authorized Capital of Rs. 5 Lakhs.

It does not carry the word ‘private’ in its name and also do not have the restrictions as carried out in the private limited companies. A Private Company which is subsidiary of Public Company also functions as Public Companies.

In determining this number of 50, employee- members and ex-employee members are not to be considered. Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company.

Prohibits any invitation or acceptance of deposits from persons other than its member, directors or their relatives; Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this definitions, be treated as a single member.

Difference between Public Company and Private Company: 15 Major Differences

1. Minimum Paid-up Capital- A company to be incorporated as a Private Company must have a minimum paid-up capital of Rs. 1, 00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5, 00,000.

4. Transferability of Shares- There is complete restriction on the trans­ferability of the shares of a Private Company through its Articles of Association, whereas there is no restriction on the transferability of the shares of a Public Company.

5. Issue of Prospectus- A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.

7. Consent of the Directors- There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Com­pany must have file with the Registrar a consent to act as Director of the company.

8. Qualification of Shares- The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company.

9. Commencement of Business- A Private Company can commence its business immediately after its incorporation, whereas a Private Com­pany cannot start its business until a Certificate to commencement of business is issued to it.

10. Share Warrants- A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Private Company can issue Share Warrants against its fully paid up shares.

11. Further Issue of Shares- A Private Company need not offer the further issue of shares to its existing shareholders, whereas a Public Company has to offer the further issue of shares to its existing shareholders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing shareholders in the general meeting of the shareholders only.

12. Statutory Meeting- A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.

13. Quorum- The quorum in the case of a Private Company is TWO mem­bers present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.

14. Managerial Remuneration- Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.

Removal of Directors

If the shareholders of a public company wish to remove a director , they must give their notice of intention to move a resolution for their removal. This must occur at least two months before the meeting of shareholders to vote on the resolution is held. The director being removed has a right to put forward a case for their remaining in office. They can do so by either giving a written statement or speaking to the motion at the meeting. A director of a public company cannot be removed by a resolution of the board of directors.

If the shareholders of a private company wish to remove a director, they may do so by passing a resolution. To pass the resolution, more than 50% of the shareholders must be in favour of the removal. The company’s constitution or shareholders agreement may also contain other mechanisms for removing a director. For example, it may allow the board of directors to remove a director or allow a particular shareholder to remove their appointed director.

Private and public company FAQ

Is a private company better than a public company?

A private company isn’t necessarily better than a public company, just like a public company isn’t necessarily better than a private company. Which one is better really depends on a business’s needs and goals.

If a business wants to raise tons of money, it’s probably better to go public and take advantage of the stock market as a source of capital. But if a business is more interested in retaining self-control, then it makes more sense to stay private.

What’s the difference between the private and the public sector?

The public sector refers to government agencies and the jobs therein. The private sector, on the other hand, refers to non-governmental businesses and organizations, plus the associated jobs.

What does a company need to do to go public?

The exact requirements to go public depend on the stock exchange you wish to sell stock on. The New York Stock Exchange (NYSE) has different requirements than NASDAQ does, for example.

Regardless, you’ll definitely want to consult with attorneys and financial experts before you even think seriously about going public. They’ll be able to guide your next steps, which will probably include these:

Your company may not be ready to go public yet, but that doesn’t mean you have to live without cash flow. You can raise capital from venture capitalists and angel investors, borrow money from business lenders, or even try crowdfunding your business.