Understanding Private vs. Public Limited Companies: Which Structure Fits Your Business Needs?

What is the difference between a private limited company and a limited company?

In a private limited company, the number of shareholders is limited to fifty, and shares cannot be traded publicly. On the other hand, a limited company can offer its shares to the public and has no restrictions on the maximum number of shareholders. Additionally, a private limited company typically has "Pvt. Ltd." at the end of its name, while a limited company uses "Ltd."

These distinctions impact various aspects such as ownership structure, governance, and regulatory requirements. It's essential to understand these differences when deciding on the type of company structure that best suits your business needs.

Hey Lalit,

There are a lot of differences. The major factor is the number of shareholders and shareholding pattern. In a Pvt. Ltd. company, the shareholders comprise a close group of friends and relatives. A Pvt. Ltd. company cannot make an offer for the public to subscribe to its shares. Whereas, a Ltd. company can give an advertisement and invite the general public to subscribe to its shares. Basically, a Pvt. Ltd. company is a corporate version of a partnership firm, whereas a Public Ltd. company is a full-fledged corporate body. For a Pvt. Ltd. company, a minimum of 2 shareholders is required, whereas for a Public Ltd. company, a minimum of 50 shareholders is required. A shareholder of a Public Ltd. company can transfer their shares freely at the stock exchange where the shares are listed, whereas in a Pvt. Ltd. Company, a shareholder cannot transfer their shares without the consent of other shareholders. Also, shares of the Pvt. Ltd. company cannot be listed on stock exchanges and hence cannot be traded there like shares of a Public Ltd. company. These are some of the major points of difference. For more details, you need to refer to The Indian Companies Act 1956.

Hope this information is enough for you.

Regards, Swati

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Hi Swathi,

Good. You have given an apt explanation for the difference between a Pvt and a limited company.

Regards, R. Rajan.

QUOTE=swati.jain.hr;952616]Hey Lalit..

There are a lot of differences. The major factor is the number of shareholders and shareholding pattern. In a Pvt. Ltd. company, the shareholders comprise a close group of friends and relatives. A Pvt. Ltd. company cannot make an offer for the public to subscribe to its shares. Whereas a Ltd. company can give an advertisement and invite the general public to subscribe to its shares. Basically, a Pvt. Ltd. company is a corporate version of a partnership firm, whereas a Public Ltd. company is a full-fledged corporate body. For a Pvt. Ltd. company, a minimum of 2 shareholders are required, whereas for a Public Ltd. company, a minimum of 50 shareholders is required. A shareholder of a Public Ltd. company can transfer his shares freely at the stock exchange where the shares are listed, whereas in a Pvt. Ltd. Company, a shareholder cannot transfer his shares without the consent of other shareholders. Also, shares of the Pvt. Ltd. company cannot be listed on stock exchanges and hence cannot be traded there like shares of a Public Ltd. company. These are some of the major points of difference. For more details, you need to refer to The Indian Companies Act 1956.

Hope this information is enough for you.

Regards, Swati[/QUOTE]

The difference between a private company and a public company is that in a private company, the maximum number of shareholders can be 50 or less, whereas in a public company, it can be more than 50.

I agree with all the above.

Here is my explanation.

Distinction Between A Public Company And a Private Company – Following are the main points of difference between a Public Company and a Private Company:

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.

2. Minimum number of members: The minimum number of members required to form a private company is 2, whereas a Public Company requires at least 7 members.

3. Maximum number of members: The maximum number of members in a Private Company is restricted to 50; there is no restriction on the maximum number of members in a Public Company.

4. Transferability of shares: There is a 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 the subscription of its shares, i.e. a Private Company cannot issue a Prospectus, whereas a Public Company is free to invite the public for subscription, i.e., a Public Company can issue a Prospectus.

6. Number of Directors: A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have at least 3 directors.

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

8. Qualification 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 Public Company cannot start its business until a Certificate to commence business is issued to it.

10. Shares Warrants: A Private Company cannot issue Share Warrants against its fully paid shares, whereas a Public 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 issues of shares can only be offered 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 members, whereas a Public Company must call its statutory Meeting and file a 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 a quorum. However, the Articles of Association may provide a number of members more than the required under the Act.

14. Managerial remuneration: The 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 to a Private Company.

15. Special privileges: A Private Company enjoys some special privileges that are not available to a Public Company.

Dear Swati,

It's indeed a good answer to the question. I would like to add one more point to the same.

A Private Ltd company can be migrated to a Public Ltd company. In fact, there are some foreign companies that come to India as a private Ltd company first and after their operations based on certain criteria, they migrate to a public Ltd company. Here, both the employer and the employees enjoy the benefits. For example, Metlife Insurance Co Pvt Ltd is now Metlife Insurance Co Ltd. This, in fact, adds value to the company and its employees.

Moreover, migration from a public Ltd company to a private Ltd company is possible. The board of directors takes the necessary action/steps with legal aids. For instance, Holland/Netherlands-based courier & cargo company, M/s. TNT India Ltd, is now operating as TNT India Pvt Ltd. Here, a public Ltd company can migrate to a private Ltd company and is mostly for foreign companies or organizations.

In the US, we can find a good number of companies under public Ltd rather than private Ltd brand. Whereas in Singapore, only private companies and not public organizations.

Hi Swati,

It was a good answer. Could you tell me, what is the minimum number of employees needed in a limited company?

Regards, Sanjay

Formation of a company is governed by the Companies Act, 1956. Irrespective of whether a company is private limited or public limited, there is no restriction on the number of employees the company can employ or should employ. In fact, a company may not have a single employee or it may have thousands of employees.

Thanks & Regards

Hi Swati, it was a good answer. Could you tell me, how many employees are required as a minimum in a limited company?

Regards,
Sanjay