MEANING OF PRIVATE LIMITED AND PUBLIC LIMITED COMPANY

MEANING OF PRIVATE LIMITED AND PUBLIC LIMITED COMPANY

There are many types of companies, the most popular form are; private limited and public limited company. Both have its own advantages and disadvantages. Therefore, an entrepreneur will have to choose the type of company depending upon the funding plans.

According to the Companies Act, 2013, ‘private company’ means a company which, by its articles;

  1. restricts the right to transfer its shares, if any;
  2. limits the number of its members to fifty not including

In simple words, the private limited company is a joint stock company. However, it is governed under the ambit of the Indian Companies Act, 2013. It is formed by voluntary association of persons with a minimum paid up capital of 1 lakh rupees. While the maximum number of members is 200, it does not include the current employees or ex-employees who were members during their employment terms. Employees may continue to be the member after their termination of employment in the company. Transfer of shares is restricted. It prohibits the entry of public through subscription of shares and debentures. The term private limited is used at the end of its name.

According to the Companies Act, 2013, ‘public company’ means a company which is not a private company.

A public limited company is a joint stock company. It is governed under the provisions of the Indian Companies Act, 2013. While there is no limit on the number of members, it is formed by the association of persons voluntarily with a minimum paid up capital of 5 lakh rupees. Transferability of shares have no restriction. The company can invite public for subscription of shares and debentures. The term public limited is added to its name at the time of incorporation.

Basis for Comparison Private Limited Company Public Limited Company
Meaning Private Limited Company refers to the company which is not listed on a stock exchange and the shares are held privately by the members concerned. Public Limited Company implies a company that is listed on a recognized stock exchange and whose shares are traded openly by the public.
Minimum number of members As against this, the private limited can be started with a minimum of two members. The minimum number of members required to start a public company is seven.
Maximum number of members 200, except in case of one person company Unlimited
Minimum number of directors 2 3
Articles of Association It must frame its own articles of association. It can frame its own articles of association or adopt Table F.
Transfer of Shares The shares of a private company are not freely transferable, as there are restrictions in Articles of Association. The shares of a public company are freely transferable, i.e. freely traded in an open market called a stock exchange.
Public Subscription Issue of shares or debentures to the public is prohibited. It can invite the public to subscribe to its shares or debentures.
Issue of prospectus Prohibited from issuing a prospectus. It can issue a prospectus or it can also opt for private placement.
Minimum amount of allotment The company can allot shares, without obtaining minimum subscription. The company cannot allot shares unless the minimum subscription stated in the prospectus is obtained.
Commencement of Business It can start a business just after receiving a certificate of incorporation. It requires a certificate of commencement of business after it is incorporated.
Appointment of Director Two or more directors can be appointed by a single resolution. One Director can be appointed by a single resolution.
Filing of Consent to act as Director Directors need not require the filing of their consent to act as a director. Directors must file their consent to act as a director, within 30 days of appointment with the Registrar.
Retirement of Directors by rotation The directors are not required to retire by rotation. The directors can be permanent. 2/3rd of the total number of directors must retire by rotation.
Place of Holding AGM AGM can be held anywhere. AGM is held at the registered office or any other place where the registered office is situated.
Statutory Meeting Optional Compulsory
Quorum 2 members who are personally present at the meeting, constitute a quorum, irrespective of the number of members. 5 members are required to present in person when the number of members as on the date of the meeting is 1000 or less.
15 members are required to present in person when the number of members as on the date of the meeting is more than 1000 but less than 5000.
30 members are required to present in person when the number of members as on the date of the meeting is more than 5000.
Exemptions Enjoys many privileges and exemptions. No such privileges and exemptions.

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