The difference between public and private companies can be studied under the following headings:
In case of public company, formation is difficult. Certificate of incorporation and also the certificate to commence business will have to be obtained from the Registrar of companies. Further, consent of the directors and the copy of their contract to purchase qualification shares must also be filed with the Registrar.
In the case of private company, the formation is not difficult. The company can commence business immediately after its incorporation and there is no need to obtain certificate to commence business. There is also no need to file documents relating to directors.
2. End-Words of the Name:
At the end of name, a public company must have only word “limited,” whereas a private company must have the words “private limited”.
In the case of public company the minimum number of members required is seven and there is no maximum limit, while in the case of private company minimum is two and the maximum is fifty.
A public company must file a prospectus or a statement in lieu of prospectus with the Registrar before allotting shares, whereas in case of private company there is no need to file prospectus or statement in lieu of prospectus.
5. Allotment of Shares:
In the case of public company there are a number of legal restrictions on the allotment of shares, but there are no restriction precedents to allotment of shares in private company.
6. Memorandum and Articles of Association:
In the case of public company seven persons have to sign Memorandum and Articles of Association but in the case of private company it is enough if two persons sign.
7. Preparation of Articles:
A public company having share capital need not prepare Articles and it can choose to adopt Table “A” of the Companies Act, which contains model rules and regulations. But a private company cannot have Table “A” because, by definition, it must impose certain restrictions upon itself through relevant provisions in the Articles. Hence in the case of private company it is compulsory to prepare articles of association.
8. Public Issue of Capital:
A public company can invite public through its prospectus to contribute to its shares and debentures, but a private company is prohibited from inviting the public to subscribe to its shares and debentures.
9. Transfer of Shares:
Shares of public company are freely transferable from one person to another and they can be quoted on the stock exchange. In the case of private company, transfer of shares is restricted by its articles and its shares cannot be quoted in stock exchange.
Every public company must have at least their directors and they are subject to retirement by rotation. There is a limit on directorships in public company, and there are legal restrictions on the remuneration of directors of public company. Further, no loans to directors can be sanctioned without the approval of the central government.
In the case of private company there should be at least two directors and they need not retire by rotation every year. There are no limits on the directorships of private company and also there are no restrictions on the remuneration of directors. Further, directors of private company can borrow from their company without the approval of the central government.
11. Statutory Meeting:
A public company must hold statutory meeting and must file statutory report with the Registrar within 6 months from the date of obtaining certificate to commence business. A private company is neither required to hold the statutory meeting nor to file the statutory report with the Registrar.
12. Share Warrant:
A public company is allowed to issue share warrants per bearer, but a private company is prohibited from the issue of share warrants per bearer.
A public company cannot issue deferred shares, and it issues only equity and preference shares. But there is no such restriction on private company and it can issue deferred shares even with disproportionate voting rights.