There are many types of companies, but mainly private limited and public limited are the types of company. The public company means those companies traded publicly in terms of security and recognized stock exchange. The private limited company is the one that is not listed in the stock exchange, and its security is held by its members of the organisation privately. Before knowing about entrepreneurship, it is essential to know about the types and best suitable kind to start a business.
There are differences between a private limited company and a public limited company. The difference between a private limited company can provide explicit knowledge of each type of company and its advantages and disadvantages. This chapter is specially designed to make the differences between private and public companies understandable.
Public limited company
According to the Companies’ Act 2013, a public limited company is not private. This means a public limited company is a joint-stock company governed by the provision of the Indian Companies’ Act 2013. There is no limit to the number of members, and it is formed by an association where people are voluntarily paid up to five lakhs rupees capital. There is no restriction in transferability, and in time of incorporation, the term public limited is added to its name. A public limited company offers shares to the public. It is more open to the public about its details and also listed in the stock market.
Private limited company
According to the Companies’ Act 2013, private companies are restricted from transferring their share. In simple words, a private limited company is a joint-stock company governed under the Indian Companies’ Act 2013. It has limitations in the number of members. Still, the voluntary association of the company should be paid a minimum of 1 lakh rupees capital. The maximum number of members should be 200, and it does not include current or ex-employees who are not listed in the employment term. Employees are allowed to continue as a member after the termination of employment in the company. There is a restriction in transferring the shares. The term private limited is used in the name of the company.
Difference between private and public company
The definition of these two types of companies shares a basic difference between private and public companies. Here is a detailed discussion to elaborate on the differences.
A public limited company is listed on a recognized stock exchange, and the company’s stocks are traded publicly. On the other hand, private limited companies are neither listed in the stock exchange, nor they can be traded. Its members can only hold it.
A public company requires a minimum of seven members to start a company, whereas a private limited company can be started with only two members.
A general meeting is mandatory for public companies, whereas for private companies, it is not mandatory.
Transferability of shares is restricted for private companies, but for a public company, the shares can be transferred to the public.
There is a tremendous regulatory burden on the public limited company, whereas the private company has no burden.
Public companies mandatorily choose a company secretary, but the private companies can appoint by choice.
The minimum capital for a public company is 5 lakh rupees, but it is only 1 lakh rupees in a private company.
There is no limitation on the membership of a public company, but private companies have only a 200 members allowance.
Advantages and disadvantages of each company
Public company advantage
Directional insights from stakeholders
Reduction in personal liabilities
Improve branding and reputation
Corporation link improvement and alternate growth
Raise capital through public buyers
Public company disadvantage
Potential loss of control
A different direction for the business
Stock market vulnerability
Increase legal implication
Private sector advantages
No minimum capital
Limited liabilities
Easy fundraising
Easy shares transfer
Uninterrupted existence
Credibility building
Private sector disadvantages
Restricted transferability in shares
The number of shareholders cannot be exceeded 50
It cannot use the prospectus to the public
Stock exchange share cannot be quoted
Conclusion
The difference between private and public companies reflects the concept of these two types of companies. It can be determined easily that a private limited company is a better option to start a new business journey than a public limited company. Though both the companies have their restrictions, in terms of profitability, private limited companies can serve as a better result in entrepreneurship. There are also limited requirements to start up a new private limited company. A minimum of two people can accompany, and two directors can work in this. It can allow stakeholders and shareholders to be natural persons or artificial legal entities. These notes on the difference between a private limited company and a public limited company have produced genuine knowledge on the concept, which will help to understand and learn entrepreneurship properly.
