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.
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.
A private limited company is a type of business structure that is privately owned and limited by shares. This means that the company's ownership is divided into shares, with each shareholder owning a specific number of shares in the company.
In a private limited company, the number of shareholders is limited to a maximum of 200, and the shares are not traded on a public stock exchange. This allows the company to operate with more flexibility and privacy than a publicly traded company.
Private limited companies are typically formed to operate small to medium-sized businesses. They are popular among entrepreneurs and small business owners due to their relatively simple legal and regulatory requirements. They offer limited liability protection to their owners, which means that the personal assets of the owners are not at risk in case the company runs into financial difficulties or incurs debt.
Private limited companies are usually owned and managed by the same group of people. This means that the shareholders and the directors of the company are often the same individuals. In contrast, public limited companies are owned by a large number of shareholders, and the management of the company is separate from its ownership.
Public limited companies have access to a wider range of fundraising options compared to private limited companies. Public limited companies can raise funds through public offerings, rights issues, and other types of securities. Private limited companies, on the other hand, can only raise funds from a limited number of shareholders or through loans from financial institutions.
Public limited companies are subject to more legal formalities and regulations than private limited companies. These formalities include more rigorous auditing and accounting standards, mandatory disclosures, and reporting requirements. Private limited companies, on the other hand, have fewer legal formalities to comply with.
The liability of shareholders in a public limited company is limited to the amount of money they have invested in the company. This means that shareholders are not personally liable for the debts of the company. In contrast, in a private limited company, the liability of shareholders can be limited or unlimited, depending on the company's Articles of Association.
Public limited companies can list their shares on stock exchanges, which provides greater liquidity to their shareholders. Private limited companies, on the other hand, cannot list their shares on stock exchanges.
A public limited company must have a minimum of seven shareholders, while a private limited company can have a minimum of only two shareholders. This means that private limited companies are often suitable for smaller businesses or for those with limited funds.
The shares of a public limited company are freely transferable, which means that shareholders can sell their shares to anyone without the approval of the company's board of directors. In contrast, the shares of a private limited company are usually subject to certain restrictions and require the approval of the board of directors before they can be transferred.
Public limited companies are required to make their financial and other information publicly available, which can help build investor confidence and attract funding. Private limited companies, on the other hand, are not required to make their financial information publicly available, which can help maintain the company's privacy.
Public limited companies are required to have a minimum authorized and issued share capital, which can be a substantial amount depending on the jurisdiction. In contrast, there is no minimum authorized or issued share capital requirement for private limited companies.
Public limited companies are required to hold an Annual General Meeting (AGM) each year, where shareholders can discuss and vote on important matters related to the company. Private limited companies, on the other hand, are not required to hold an AGM, although it is a good practice to do so.
Conclusion
In conclusion, public limited and private limited companies have several differences in terms of their ownership and management structure, fundraising options, legal formalities, liability, listing, minimum number of shareholders, transferability of shares, public disclosure of information, minimum capital requirement, and statutory meetings. When choosing between the two types of companies, it is important to consider the business's objectives, budget, long-term goals, and level of regulatory compliance required.
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 a part of or majority of the shares are sold to the public via Initial Public Offer.
Some advantages of a public limited company over a private limited company include the ability to raise significant capital through public share offerings, access to a larger pool of investors, and increased transparency and accountability due to strict regulatory requirements.
Some advantages of a private limited company over a public limited company include greater control and flexibility for the founders and shareholders, reduced regulatory compliance costs, and the ability to maintain confidentiality of the company's financial and strategic information.
Yes, a public limited company can convert to a private limited company by following the prescribed procedures under the Companies Act. Similarly, a private limited company can convert to a public limited company by meeting the minimum regulatory requirements.
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