Question

Distinguish between private companies limited by shares and public companies limited by shares. 700 words

Answer 1

Key points of difference between a private limited and a public limited company are:

1. A public limited company is a company listed on a recognized stock exchange and the stocks are traded publicly. On the other hand, a private limited company is neither listed on the stock exchange nor are they traded. It is privately held by its members only.

1. The minimum number of members required to start a public company is seven. As against this, the private limited can be started with a minimum of two members.

1. In case of a public company, it is compulsory to call a statutory general meeting of members. There is no such compulsion in case of a private company.

1. The issue of prospectus or statement is mandatory in case of public company. However, this is not the case of a private company.

1. The public company will require a certificate of commencement post incorporation to begin its operation. In contrast to this, a private company can start its business right after its incorporation.

1. The transferability of shares is restricted completely in private limited company. While the shareholders of a public company can transfer their shares freely.

1. Since there is a limited number of people and fewer restrictions, the scope of a private limited company is limited. In contrary, the scope of a public company is vast. This is because the owners of the company can raise capital from the general public and have to abide by may legal restrictions.

1. There is a greater regulatory burden on a public limited company. This is because a great amount of information has to be made available to the public who are shareholders or prospective shareholders. A lot of money has to be invested in order to prepare reports and disclosures that match with the regulations provided by SEBI.

1. A signed written resolution is received by holding general meetings of a private limited company.

1. While it mandatory for public companies to appoint a company secretary, private companies may choose to do so only at their will.

Depending upon one's need a type of company is chosen to be registered. However, the principal reason for choosing a public company is to have the ability to offer shares to the public. One has to pay a price for this by complying with a greater number of restrictions and considerable loss of privacy.