Limited Company Vs Public Limited Company

Limited Companies
Definition
As per the Section 3(1) (iii) of The Companies Act 1956 a private company is one which:-

1. Has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as 2.
may be prescribed; and By its Articles Association: A. Restricts the right of transfer of its share; B. Limits the number of its members to 50 which will not include:I. Members who are employees of the company; and II. Members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees; C. Prohibits any invitation to the public to subscribe for any shares or debentures of the company; and D. Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

This goes to say that a private company, in addition to the earlier conditions, shall have a minimum paid-up share capital of Rupees One Lakh or such higher capital as may be prescribed and its Articles shall prohibit invitation or acceptance of deposits from persons other than its members, directors or their relatives. In case of such companies, public interest is not involved. The basic characteristics of a private company in terms of section 3(1)(iii) of the Act do not get altered just because it is a subsidiary of a public company in view of the fiction in terms of section 3(1)(iv)(c) of the Act that it is a public company. May be it is a public company in relation to other provisions of the Act but not with reference to its basic characteristics. In terms of that section, a company is a private company when its articles restrict the right of transfer of shares, restrict its membership to 50 (other than employees shareholders) and prohibits invitation to public to subscribe to its shares. Therefore, all the provisions in the articles to maintain the basic characteristics of a private company in terms of that section is restriction on the right to transfer and the same will apply even if a private company is a subsidiary of a public company.

Characteristics
A private limited company is the one which is owned by a group of people. The capital in such a company is only contributed by the owners and shares cannot be issued to the general public. The shares of a private limited company are not traded on the stock exchange. These companies are usually smaller in size as compare to public limited companies. Moreover, the profits are only shared among the shareholders. To simplify 1. Shareholders right to transfer shares is restricted; 2. The number of shareholders is limited to fifty; and 3. An invitation to the public to subscribe to any shares or debentures is prohibited.

More Info
Private companies are deemed to be converted into public companies in the following circumstances: 1. When not less than 25% of the paid up capital of the company is held by one or more corporate bodies. 2. When the company holds 25% of the paid up share capital of a public company. 3. When the average annual turnover of the company exceeds Rs.100 million. 4. When the company accepts deposits from the public. On becoming a deemed public company, many provisions of the Companies Act, 1956 in respect of which the company had exemption as a private company would become applicable.

Public Companies
DefinitionThe Company defined under section 3(1)(iv) of the Companies Act, 1956 is a public company which1. Is not a private company; 2. Has a minimum paid-up capital of Rs. 5 lakhs or such higher capital as may be prescribed; 3. Is a private company but subsidiary of a public company. Private Companies deemed to be Public Companies Certain private companies are deemed to be public companies by virtue of section 43 A, viz.1. When 25% or more of its paid-up share capital is held by one or more body corporate; 2. When its average annual turnover (during the last 3 years) exceeds Rs. 25 crores; 3. When it holds 25% or more of the paid-up share capital of Public Company; or 4. When it accepts or renews deposits from the public after making an invitation by an advertisement. However, as per the Companies (Amendment) Act, 2000 effective from 13th December 2000 such deemed public limited companies are required to intimate to the Registrar to revert back to their original status as a private limited company. In simple terms a company whose securities are traded on a stock exchange and can be bought and sold by anyone. Public companies are strictly regulated, and are required by law to publish their complete and true financial position so that investors can determine the true worth of its stock (shares). Also called publicly held company.

Charectersetics
1. 2. 3. 4. 5. A minimum of seven members are required to form a public limited company. It must have minimum paid-up capital of Rs 5 lakhs. There is no restriction on maximum number of members. The shares allotted to the members are freely transferable. These companies can raise funds from general public through open invitations by selling its shares or accepting fixed deposits. These companies are required to write either public limited or limited after their names.

6.

Distinction Between A Public Company And A Private Company

Following are the main points of difference between a Public Company and a Private Company :-

Minimum Paid-up Capital: A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5,00,000. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires atleast 7 members. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have atleast 3 directors. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company . Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share holders, whereas a Public Company has to offer the further issue of shares to its existing share holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share holders in the general meeting of the share holders only. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.

Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.