Background-

Under Indian Companies Act 2013 there are two types of legal entities {companies} which are extensively used for carrying out business in India. The salient features of public limited Companies  and private limited companies with their advantages and disadvantages are given below:-

   Public Company Private Company  Advantages-  Public/ Private Disadvantages Public/ Private
Separate legal existence different from shareholders Same For  Public & Private

it gives the perpetual existence of entity not linked to shareholders

For Public & Private– No disadvantage
Limited liability of shareholders Same For both. The personal assets of shareholders are not to be taken for liabilities of the company For both. No disadvantage
Should have name at the time of incorporation Same For both- as it establishes an identity, existence and the brand which help in business For both. Change of name is a legally cumbersome process
Should have a registered office within 30 days of incorporation Same For both- as through this office communication and jurisdictional position are established For both.

Shifting of Registered office is a legally cumbersome process

Memorandum of Association as a constitution of the company and Articles of association for the functioning of the company are required for incorporation. Same For both– the legal parameters for the existence of the company and its day to working are clearly laid down. For both– These documents could become restrictive for doing any new business or for having any flexibility in working.
Minimum seven shareholders, no maximum Minimum two and maximum of 200 shareholders For Public company, it helps in raising funds from the public at large

For Private Company, limiting the number helps in keeping the close & private character of the entity

For both– restricting the numbers can affect the flexibility of  starting & doing business
Minimum three directors who should be individuals and at least should stay in India for not less than 182 days in a financial year. The maximum is 15 directors Minimum is two directors and rest are same For both. Helps the Board of Directors to be of the standard size within the specified numbers For Both. Restricts the doing of business by limiting the Board size.
Annual General meeting {AGM}  has to be held each year and quorum of shareholders to be present – five/ fifteen/ thirty members personally present depending upon the total number of members AGM has to be held similarly but the quorum is two members to be present personally For both. The shareholders’ approval is obtained annually on matters like approval of final audited accounts, the appointment of auditors and appointment of directors, etc., together with other critical matters like borrowings, investments etc., For both. Taking shareholders’ approval, annually, with the minimum number of members present {quorum} may be problematic for carrying out business on many occasions.
Managerial remuneration of directors, Managing Director, {MD} Whole Time Director {WTD}  etc.,  is restricted for public companies linked to the percentage of profits. No such restriction For public company , helps in keeping the cost of remuneration within limits.

For private company they are free to pay as the financials will permit.

For public company this restriction may hamper attracting good talent. Does not apply to private company.
Shares can be listed and publicly traded.

Liquidity of shares & easily transferable

There is the restriction in transferability of shares. For Public company, listing or free transferability helps in raising funds from public . For Private company, the private or closely held nature is kept. For public company there can be a dilution of control and change of majority ownership.

For private company fundraising could be a problem.

Under rigorous compliance regime.

Reporting requirements are elaborate.

There are many exemptions For Public company, this gives confidence to the authorities and public which in turn helps in fundraising and getting other permissions for doing business.

For private company, the close working of the company with minimum outside interference is possible.

For Public company, cost of compliance goes up.

For Private company, fundraising from outside can be problematic.

Financial affairs are public Financial affairs are not generally needed to be made public For public company it gives confidence to the authorities and the public for funding & carrying out business.

For private company, the close nature of the business is maintained.

For public company, there is more scrutiny and accountability.

For private company , it generally doesn’t support in raising funds

Management Control rests with Board of directors and majority shareholders who may be outsiders Control may rest with Board and shareholders who may be a close group or individual/s For both: Helps in maintaining continuity of management For public company, control may be changed due to public transactions of shares. For Private company , undesirable groups may be harmful to the business.
Can be wound up by due process of law Same For both: Helps in bringing an end to the legal entity with equitable meeting of liabilities and distribution of assets For both: Time consuming and cumbersome. New Insolvency and Bankruptcy  Code 2016 can bring out a quick end to the insolvent company.

Author Bio

Qualification: CS
Company: N/A
Location: NEW DELHI, New Delhi, IN
Member Since: 30 Jun 2018 | Total Posts: 31
Mr. Amitav Ganguly is a Law Graduate and qualified Company Secretary with more than three decades of rich experience in senior positions; company secretarial, corporate legal affairs, management and corporate governance; in different industry sectors like investment, manufacturing and real estate. View Full Profile

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