Difference Between Private Company and Public Company in Tabular Form
Understanding the difference between private company and public company is vital for Commerce students, competitive exams, and anyone learning about Indian business structures. This topic appears in class 11, 12, B.Com, Company Law exams, and is important for basic business awareness.
| Point of Difference | Private Company | Public Company |
|---|---|---|
| Definition | Defined in Section 2(68) of the Companies Act, 2013 | Defined in Section 2(71) of the Companies Act, 2013 |
| Minimum Members | 2 members | 7 members |
| Maximum Members | 200 members | No limit |
| Ownership | Founders, family, private investors | General public (shareholders) |
| Directors | Minimum 2 | Minimum 3 |
| Share Transferability | Restricted | Freely transferable |
| Issue of Shares | Cannot offer shares to public | Can offer shares via IPO/prospectus |
| Suffix in Name | Private Limited | Limited (Public Limited) |
| Disclosure Requirements | Limited, mostly private | Public disclosures, annual reports |
| Examples (India) | Google India Pvt Ltd, Flipkart Pvt Ltd | Infosys Ltd, Tata Steel Ltd |
Difference Between Private Company and Public Company: Meaning
The Companies Act, 2013 defines both company types. A private company is an organization where shares cannot be sold to the public, and ownership usually remains with the founders or select investors. In contrast, a public company can offer shares to the public through the stock exchange, allowing anyone to become a shareholder.
Characteristics of Public Company and Private Company
Key characteristics help identify and compare the two company types. These features are important for remembering differences for exams and understanding Indian business law.
- Separate Legal Identity: Both private and public companies are separate legal entities from their owners or shareholders.
- Number of Members: Private companies: minimum 2, maximum 200. Public companies: minimum 7, no upper limit.
- Share Transferability: Shares in public companies can be freely sold. In private companies, transfers are restricted.
- Disclosure and Transparency: Public companies must disclose financials and operations. Private companies have fewer disclosure requirements.
- Prospectus: Public companies can issue a prospectus to invite the public for share subscriptions. Private companies cannot.
- Board of Directors: Private companies need at least 2 directors. Public companies need at least 3, including independent directors as per SEBI norms.
Key Features: Difference Between Private Company and Public Company
Some features distinctly separate private companies from public ones. These are often asked in short and long answer exam questions.
- Minimum Paid-up Capital: No minimum for private companies (after amendments). Public companies often need higher paid-up capital.
- Quorum for Meetings: Two members for private company AGMs; different rules for public companies based on total members.
- Appointment of Directors: Public: At least 1/3rd must be independent directors; Private: No such rule.
- Suffix: "Private Limited" (Pvt Ltd) for private, "Limited" (Ltd) for public.
Examples of Private and Public Companies in India
Examples make the definitions tangible for exams and practical understanding. Well-known private companies in India include Google India Pvt Ltd, Flipkart Internet Pvt Ltd, and Byju's. Public company examples are Tata Consultancy Services (TCS), Infosys, and Reliance Industries Ltd.
You can learn more about the features of companies with Features of Company and explore related legal distinctions at Difference Between Partnership Firm and Company.
Uses in Exams, Business, and Everyday Contexts
Understanding the difference between private company and public company helps in board exams (class 11/12 Business Studies), professional courses (CS, CA, CMA), and business decision-making. Practical application includes knowing which form to choose when starting a business, or understanding news about IPOs, mergers, and investments.
Quick Points: Difference Between Private and Public Company
- Private companies have restricted shares and maximum of 200 members.
- Public companies can offer shares to anyone via stock exchange—no member limit.
- Private companies do not issue prospectus and have fewer disclosures.
- Public companies must follow more regulations and are subject to SEBI rules.
At Vedantu, we simplify such Commerce topics using clear tables, examples, and easy points, helping students prepare for school exams and real-world business practice. For an in-depth look at the Companies Act 2013 Private Companies and other Types of Companies, you can explore our resources.
In summary, understanding the difference between private company and public company is essential for academic exams and business knowledge. Remember their definitions, key features, and legal requirements. Use tables and examples to quickly recall distinctions for tests and professional discussions.
FAQs on Difference Between Private Company and Public Company
1. What is the main difference between a private company and a public company?
The primary difference lies in ownership and share transferability. Private companies have restricted share ownership, usually among a small group of individuals, and shares are not publicly traded. In contrast, public companies offer shares to the public through stock exchanges, making their shares more readily transferable.
2. How many members are required to start a private and a public company?
Under the Companies Act 2013, a private company needs a minimum of two and a maximum of 200 members. A public company requires at least seven members to commence operations.
3. Can a private company issue shares to the public?
No, a private company cannot offer its shares to the general public. Share transfers are typically restricted to existing members or with prior board approval. This contrasts sharply with a public company, which is free to offer shares on stock exchanges.
4. Are the shares of a public company freely transferable?
Yes, shares of a public company are generally freely transferable. This is because they are listed on stock exchanges, allowing for easy buying and selling of the shares. In contrast, shares in a private company have restrictions on transferability.
5. What is the minimum capital required for private and public companies?
The Companies Act 2013 specifies minimum capital requirements. While there's no prescribed minimum paid-up capital for a private company, a public company needs to meet a higher minimum paid-up capital threshold set by the Act. It’s best to check the current Act for the exact figures.
6. What are some examples of private and public companies in India?
Examples vary. Reliance Industries Limited (RIL) is a prominent example of a public company in India, while many smaller businesses operate as private limited companies. Specific examples are readily available on the Ministry of Corporate Affairs (MCA) website.
7. What is the difference between a private company and a deemed public company?
A deemed public company is a private company that meets certain criteria specified in the Companies Act 2013, such as having a paid-up share capital exceeding a specific limit or having more than a specified number of members. These companies are subject to increased regulatory oversight, similar to public companies.
8. What regulatory disclosures do public companies face that private companies do not?
Public companies are subject to more stringent disclosure requirements. They must regularly file financial statements and other information with the stock exchanges and regulatory bodies like the MCA. Private companies have less extensive disclosure needs.
9. How does a private company become a public company (process overview)?
This involves an Initial Public Offering (IPO), where the private company offers its shares to the public through a stock exchange. The process requires complying with stringent regulatory norms of the Securities and Exchange Board of India (SEBI) and involves various legal and financial steps.
10. Why might a business prefer to stay private rather than become public?
Businesses might choose to remain private to avoid the increased regulatory burden, scrutiny, and compliance costs associated with being a public company. Maintaining control and privacy are also key factors for many businesses opting for a private structure. They also avoid the pressure to meet public shareholder expectations.
11. What are the advantages of a public company?
Public companies have several advantages, including easier access to capital through stock exchanges, increased brand visibility and credibility, and potential for higher valuations. However, they also face stricter regulatory compliance and oversight.
12. What are the features of a public company?
Key features include a minimum of seven members, public share offerings, shares listed on stock exchanges, and enhanced regulatory compliance. These features contrast with the more limited structure of a private company.
