Difference Between Public Ltd. and Private Ltd. Company

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Difference Between Public and Private Company

09 AUGUST, 2024

A company is a significant entity amongst business organisations. It is a voluntary association where individuals with a common purpose pool their resources to achieve their goals collectively. This entity, crafted under legal jurisdiction, possesses a distinct legal identity and its unique signature, known as the common seal.

A company exists as an autonomous entity operating independently of its owners. Broadly classified into two types—Public limited and Private limited Companies— . Understanding the differences between private and public companies is important for success in the corporate world.

Difference Between Private Ltd. and Public Company Ltd.

Private and Public companies differ on several factors. The table below will make the difference between public and private companies clear:

Basis	Public Company	Private Company
Meaning	Listed on a stock exchange, shares are publicly traded.	Not listed on a stock exchange; shares are privately held.
Number of Members	Minimum 7, no maximum limit.	Minimum 2, maximum 200 members.
Articles of Association	Can draw up its own or adopt Schedule F.	Must draw up their articles of association.
Transfer of Shares	Shares are freely transferable on the stock exchange.	Shares have restrictions on transfer as per articles.
Public Subscriptions	Can invite the public to subscribe for shares or bonds.	Prohibited from issuing shares or bonds to the public.
Issuing a Prospectus	May issue a prospectus or opt for private placement.	Prohibited from issuing a prospectus.
Minimum Allotment Amount	Cannot issue shares without a minimum subscription.	Can allot shares without obtaining a minimum subscription.
Starting a Business	Requires a certificate of commencement of business.	Can start immediately after receiving an extract from the register.
Appointment of Director	One director may be appointed by one resolution.	Two or more directors may be appointed by one resolution.
Statutory Meeting	Mandatory.	Optional.
Suffix	Must include “Limited” in its name.	Must include “Private Limited” as a suffix in its name.
Disclosing Reports	Must issue quarterly and annual financial statements.	Not required to disclose financial results to the public.

What is a Public Limited Company?

A Public Limited Company, as defined by the Companies Act of 2013, is an entity that extends an invitation to the general public to subscribe to its share capital, thus raising funds. This invitation is facilitated through the issuance of a prospectus, and subsequent share allotments are made based on the applications received. One notable characteristic of public companies is allowing shareholders to transfer their shares freely without restrictions.

A minimum of seven members is required to form a publicly listed company, and there is no ceiling on the maximum number of members.

Furthermore, these companies must maintain a minimum paid-up capital of Rs. 5 Lakh. If a private company is a subsidiary of a public company, it is also categorised as a public company. Another distinctive feature is that every public company must use the suffix "Ltd." in its name, as specified by the Companies Act of 2013.

Public companies gain visibility by listing their shares on stock exchanges. This visibility allows the public to buy and sell shares. Some examples of public companies include Bharat Petroleum Corporation Ltd., Hindustan Petroleum Corporation Ltd., and Infosys Technologies Limited.

Also Read: What is Account Aggregator

What is a Private Limited Company?

A private limited company operates differently from its public counterpart. Unlike public companies, private entities do not offer their securities for public subscription through stock exchanges. Instead, shares are traded privately or over the counter. Moreover, the transfer of shares in a private company is often restricted, limiting ownership to select individuals or entities.

Private limited companies typically consist of at least two members and a maximum of 200. They must have a minimum paid-up capital of Rs. 1 Lakh and are not permitted to invite the general public to subscribe to their deposits. Additionally, under the Companies Act of 2013, every private company must append "Pvt. Ltd." to its registered name to indicate its legal status.

Transitioning from a private to a public company is a significant milestone for any business. A company gains access to a broader range of funding opportunities by going public than its private counterpart. Once a private corporation becomes public, privately owned securities transition into public ownership and can be listed on the stock exchange for trading.

Some examples of notable Indian private limited companies include HDFC Bank Pvt Ltd, Hindustan Unilever Pvt Ltd., and Bharti Airtel Pvt Ltd.

What are Some Examples of Public and Private Companies?

There is a huge difference between public and private company. Let's explore some examples to illustrate these differences.

Examples of Public Limited Companies

Indian Oil Corporation Ltd: A colossal entity in the oil and gas sector, Indian Oil Corporation Ltd operates as a public company.
Bharat Petroleum Corporation Ltd: Another major player in the oil and gas industry, Bharat Petroleum is a public limited company with shares available for public trading.
State Bank of India: The State Bank of India is a prime example of a Public Limited Company.
Hindustan Petroleum Corporation Ltd: HPCL is a public company, making its shares accessible.

Examples of Private Limited Companies

Ola Cabs: Ola is an example of a private limited company.
Swiggy: A famous name in the food delivery industry, Swiggy operates as a private limited company.
Hindustan Unilever Limited: While HUL is a subsidiary of Unilever, it operates as a private limited company in India.

Also Read: Importance of Choosing the right business Loan Tenure

Factors to Consider When Choosing Between PLC and Ltd

Several factors are important When deciding between forming a Public Limited Company (PLC) or a Private Limited Company (Ltd). First and foremost, it's essential to align the choice with the business's long-term objectives and financial requirements. Here are some key considerations:

Ownership Structure: Determine the desired ownership structure, considering whether the business aims to raise capital through public investment or remain privately owned and closely held.

Capital Requirements: Assess the company's financial needs and evaluate whether the flexibility of accessing capital markets offered by a PLC outweighs the control and autonomy retained by a Ltd.

Regulatory Compliance: Consider the regulatory obligations associated with each company structure, including reporting requirements, disclosure norms, and compliance costs.

Public Perception: Reflect on the impact of the company's status on its reputation and brand perception in the eyes of customers, investors, and stakeholders.

Risk Management: Evaluate the level of risk tolerance and liability protection the business owners desire. Consider the advantages of the limited liability protection that both PLCs and Ltd offer.

Cost Considerations: Compare the initial setup costs, ongoing operational expenses, and administrative burdens associated with each company structure to ensure cost-effectiveness.

Exit Strategy: Contemplate the company's future exit strategy, whether it involves going public through an initial public offering (IPO), seeking acquisition opportunities, or maintaining long-term private ownership.

Steps to avail for a Business Loan for a Public or Private Limited Company

Assessing the company's financial needs and determining the loan amount required.
Reviewing the company's financial statements, including income statements, balance sheets, and cash flow statements.
List of essential documents needed for the loan application process, such as incorporation documents, tax returns, bank statements, etc.
Explanation of why each document is necessary for the loan application.