What is Difference Between Private and Public Company

A company is a contribution of different people towards common stock. Mainly the companies are in two forms i.e. private and public. The difference in these two companies comes because of the difference in its statutory requirements and provisions of company law. The main point’s which shows the difference between both of them are discussed as follows:-

Firstly there is a difference in the statutory limit of minimum members required to form both type of companies. There is requirement of at least 2 members to form private company while in a public company number of minimum members required are 7. The provisions related to maximum limit of members in both cases are also different. In private company the maximum number of members cannot exceed 50 but in public company there is no limit on number of maximum members. There is also difference in the name used by both companies. The word PVT.LMT is used at the end of the name of private company while the word LMT is used in the case of public company. The next difference between the both companies is the capital requirement. The minimum capital required for the formation of private company is 1,00,000 RS and the capital required for the formation of public company is 5,00,000 RS. There is also difference in provision related to transferability of shares. In private companies the shares cannot be transfer to any outsider but in public company no such restriction is applied. The shares can be transferred easily to any person in case of public company. It is noted that the private companies cannot issue shares, debenture or any collateral security to third party for arranging funds. So in private companies its own member’s funds can act as source of finance only. But there is no such restriction in the case of public company. Shares, debentures and any collateral security can be freely issued to third parties for arranging finance.

It is important to know that a private company who is a subsidiary of public company is also considered to be a public company. Private company is converted into public company if it does not comply with the requirement of law. If by will the private company is changing into public company there is need to pass a special resolution in the article of company and to submit it with registrar within 3 months. The name of company from PVT.LMT to LMT is to be converted within 30 days of approval.