Public and Privately Traded Company in India.
The decision to come up with a business in India requires selecting a type of company that is the most suitable. Public Limited Company and the Private Ltd Company are the two most prevalent choices under the Companies Act, 2013. They both are registered by the same law but do have a number of legal and operational differences.
This blog defines the distinction between public and private companies using simple English so that the businesspersons can find it easy to comprehend which organization fits their business.
What is a Public Limited Company?
Section 2(71) of Companies Act, 2013, defines the term of a public company as a company that is not a private company. A public limited company is able to invite the general population to purchase its shares.
These firms are in a position to raise capital via a Special purpose issue (IPO) or listing on a stock exchange. Public companies are usually large companies requiring large investment and extensive ownership.
The shares of a public limited company can be transferred freely meaning that every person can either sell or purchase the shares.
What is a Private Limited Company?
According to the companies act, 2013, Section 2(68) a private limited company is a company where the transfer of shares is restricted and where no one in the society is permitted to subscribe to the securities of the company.
A private company can be constituted of 200 maximum numbers of members excluding the One Person Company (OPC). Start ups, small firms, and family-owned businesses are some of the companies that often favor these.
Most new entrepreneurs opt for private limited companies during Company Registration in Delhi and other major cities because of better control and simpler decision-making.
Dissimilarity in the number of members and directors.
A plc must be composed of at least 7 members and no limit. It should have a minimum number of 3 directors.
The minimum number of members in a private limited company is 2 and it has a maximum of 200 members. It should have not less than 2 directors.
The maximum number of directors in both forms of companies is 15 directors, which is subject to increase upon a special resolution.
Share Capital and Liability
The latest regulations do not require minimum paid-up share capital in both the public and the private companies.
The liability of the members in the two companies could be limited or unlimited depending on the structure of the company. But the majority of companies use limited liability to secure personal assets of the shareholders.
Fund Raising and Investment options.
A prospectus allows a company that is publicly limited to raise funds. It is one of the greatest benefits of a public company.
A company that is privately limited is not able to raise capital through the people. It may however raise capital by:
- Equity shares
- Rights issue
- Venture capital funding
- Angel investors
- Internal accruals
Both the government permits Foreign Direct Investment (FDI) in private and public companies.
Legal Requirement and Compliance.
The Companies Act, 2013 requires both the public and the private companies to comply with their annual compliance. This includes:
- Statutory audit
- Submission of financial reports.
- Submission of annual returns to Registrar of Companies.
Board meetings should be conducted within 30 days of incorporation, and not less than four board meetings per year, separated by a maximum of 120 days.
Share Transfer, Control and Ownership.
Shareholders are the owners in both public and private companies and the management is done by the board of directors.
Stock in a publicly-traded firm is not so difficult to transfer, though, and this increases the flexibility of ownership.
In a private limited company, the Articles of Association will limit transfer of shares. This assists in sustaining consistent membership and domination among the current members.
Business Scope and Conversion.
Movement of a public limited company into a private limited company and vice-versa is possible through legal procedure.
Public companies are able to conduct any business within the law. Most business activities can also be carried out by private companies with the exception being where in specific areas, the investment by a private firm is limited.
What Company Structure is superior?
A limited liability company is the best choice when the business is new or small, with more control and flexibility required. This is why many entrepreneurs prefer private companies during Company Registration in Delhi.
A company which is publicly limited is applicable in large business which requires public financing, broader ownership, and expansive growth.
Conclusion
The advantages and limitations of both the public and the private companies exist. The decision that is correct will be based on the size of the business, future growth and funding needs. Knowing these differences will allow the entrepreneurs to make good decisions and a good legal footing on the business.