What is the Difference Between Public and Private Company

The major difference between a Public and Private company is of the Ownership. A public company is owned by individual shareholders. A private company is owned and operated by Investors and founders. When starting a business, one of the most crucial decisions that a business owner needs to make is the choice of company structure. In India, companies are typically structured as either public limited or private limited companies. So it is important to know the difference between the two companies private limited and public limited.

Both types of companies have their own advantages and disadvantages, and choosing the right type of company can impact the growth and success of a business. In this blog post, we'll take a look at the differences between public limited and private limited companies.

Table Of Content

Definition of Public Limited Company

A public limited company (PLC) is a type of business organization that is publicly traded on a recognized stock exchange, such as the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE). The Companies Act, 2013, provides the legal framework for the formation and operation of public limited companies in India.

A public limited company in India must have at least seven shareholders and three directors, with no upper limit on the number of shareholders. The company must also appoint a qualified company secretary, and comply with various legal and regulatory requirements, such as filing annual financial statements with the Registrar of Companies.

Definition of Private Limited Company

A private limited company is a corporate structure that is privately owned and share based. This means that the company's ownership is divided into shares, with each shareholder holding a certain number of them.

A private limited corporation has a maximum of 200 shareholders, and its shares are not publicly traded. This permits the corporation to operate more freely and privately than a publicly traded company.

Difference Between Private Limited Company and Public Limited Company

• Ownership and Management: Private limited firms are typically owned and controlled by the same group of individuals. This means that the shareholders and directors of the company are frequently the same people. In contrast, public limited businesses are held by a large number of shareholders, and the company's management is independent of its ownership.
• Fundraising: Public limited firms have more financing alternatives than private limited companies. Public limited businesses can raise capital through public offerings, rights issues, and other securities. Private limited corporations, on the other hand, can only raise cash from a small number of shareholders or borrow from financial institutions.
• Legal Formalities: Public limited firms are subject to additional legal requirements and restrictions than private limited companies. These formalities include stricter auditing and accounting standards, mandated disclosures, and reporting requirements. In contrast, private limited firms must comply with fewer legal formalities.
• Liability: A public limited company's shareholders are only liable for the money they invest in the company. This means shareholders are not individually accountable for the company's debts. In contrast, in a private limited corporation, shareholders' liability can be limited or unlimited, depending on the firm's Articles of Association.
• Listing: Public limited corporations can list their shares on stock markets, giving their owners greater liquidity. In contrast, private limited corporations are unable to list their shares on stock exchanges.
• Minimum Number of Shareholders: A public business must have at least seven shareholders, whereas a private firm might have as few as two. This means that private limited companies are frequently appropriate for small businesses or those with limited resources.
• Transferability of Shares: A public limited company's shares are freely transferable, which means shareholders can sell them to anyone without the board of directors' approval. In contrast, shares in a private limited company are typically subject to limitations and must be approved by the board of directors before being transferred.
• Public Disclosure of Information: Public limited companies are required to disclose their financial and other information to the public, which increases investors' confidence and encourages subscription of capital. Private limited companies are not bound to publish their financial information; hence, privacy can be maintained regarding the affairs of the company.
• Minimum Capital Requirements: In a public company, a business requires a minimum of seven shareholders, whereas in a private company, a business requires only two shareholders. Thus, in private limited companies, a business can be formed with only two shareholders.
• Statutory Meetings: In public limited companies, the AGM must be organized once a year. During the AGM, issues of concern are brought up for discussion and voting among the shareholders. In private limited businesses, an AGM is not obligatory, although it is advisable to hold one.

Conclusion 

The main difference between a public and private limited company is in who owns it, how it is managed, how it raises money, the legal steps needed, who is responsible if the company fails, whether it can go public, the number of people who can own shares, if shares can be sold easily, how much information must be shared with the public, the minimum amount of money needed to start, and how often certain meetings must be held. Choosing between a public and private company should be done thoughtfully, based on the company's purpose, available money, long-term plans, and need to follow the rules set by the law.

What is the major difference between private and public?

A private limited company is owned and operated by an individual or a group of people who are shareholders or directors, whereas a public limited company’s shares are sold to the public via an Initial Public Offer (IPO).

What is Corporate Affairs Public Search?

Corporate Affairs Public Search allows users to access basic company information such as registration details, directors, and filing status through the MCA portal. Learn more about Corporate Affairs Public Search.

What are the advantages of a private limited company over a public limited company?

A private limited company provides greater control and flexibility for founders and shareholders, reduced regulatory compliance costs, and the ability to maintain confidentiality of financial and strategic information.

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