Difference b/w Private Limited company & Public Limited Company

Published Fri, 05 May 2023 Corporate Law

There are several options for entrepreneurs to conduct the business in India. Due to easy regulations and compliances, more young entrepreneurs from India as well as Foreign Nationals are attracted towards exploring the Indian Market for starting their ventures. 

Amongst several business structures like Proprietorship, LLP, Partnership, Companies, Body Corporate, and many other, incorporating Company is considered most feasible option depending upon the requirement of promoters. The status of a registered company is considered most prestigious and easily trusted by banks, financial institutions and other organizations making it easier to enter into agreements for business requirements.

In this article, we will discuss in brief about two kinds of Companies; i.e., Private Company and Public Company, along with differences amongst these two.

Key highlights on Public Limited Company - 

Defined under section 2(71) of Companies Act, 2013, Public Company means any company which is not a Private Company. As per the act, any Private Company being the subsidiary of Public Company is deemed Public Company.

Public Company can be of two types such as Listed or Unlisted. If the company lists its securities on any Recognized Stock Exchange and actively trades its securities on stock market and is governed under the provisions of SEBI as well as Companies Act, it is known as a Public Listed Company. On the contrary, Unlisted Public Company can raise funds from the public but doesn’t list its securities on the terminals of stock exchange instead the shares are traded over the counter.

Advantage of Public Company Company -

• Easy procurement of funds through ability to raise large amounts of funds through IPO, FPO, and selling of stocks on stock exchange. 

• Since public company if listed are governed through the regulations of SEBI as well makes it more visibly compliant in the eyes of law as well as public at large

• Public companies can distribute the risk due to shared ownership with a large number of shareholders. Instead of relying on one or two angel investors, public companies are backed by a wide range of investors.

• Public Company is the only business structure that have access to pool of funds that enables it to pursue new projects which adds to the potential growth of the company 

Key highlights on Private Limited Company -

Defined under section 2(68) of Companies Act, 2013, Private Company means a company which by its article is restricted to transfer its shares and limits the maximum limit of members to Two Hundred. Unlike Public Company, the Private Companies are not allowed to dip into Public Capital instead they can only source their funds through Private Sources. 

Private Companies cannot trade on stock exchange but can sell shares to a certain limit without listing itself to Stock Exchange. This way Privately Owned Company can make use of Equity Shares to attract investors.  In Private Companies, funds are often sourced through Venture Capitalist, Angel Investors, Banks, or Financial Institutes. Private Companies can convert themselves into Public Company as and when it requires more funding and can go for Initial Public Offering (IPO) thus issuing shares to the public at large.

Advantage of Private Limited Company -

• Less and easy compliances as compared to Public Company makes it a feasible choice for Start-Ups.

• Limited Liability of members makes it feasible choice because they are never personally liable for Company’s debt or loss instead their Liability is limited to the extent of: “Unpaid Share Capital” held by them in case Company is registered as “Limited by Shares” and “Amount of Guarantee Given” in case Company is registered as  “Limited by Guarantee”

• Starting a Private Company is comparatively easy due to simplified procedure of Company Registration and it requires just two persons to start a Private Company. 

Difference between Public Limited and Private Limited Company -