In India, doing business is like riding a roller coaster. There are many types of entrepreneurs on that journey, and all of them are optimistic about the future. Each entrepreneur has their manner of dealing with the environment, and each entrepreneur has their plan for moving the company ahead. With the development of various sales and economics, we can see small industries being founded and growing up in India. A rise in the number of businesses impacts several other aspects. The term "business" refers to a cooperative organisation or group formed to attain common goals. It is a distinct legal entity, which means that the corporation and its workers are two distinct individuals before the law. All features are constant succession, a shared seal, the ability to claim damages, and capital split into transferable shares. Organisations with names that finish in public limited or private limited are common. We frequently misinterpret what they imply. What's the distinction between them if they're both businesses? What can two types of organisations doing commerce in the very same nation have in common?
This article will look at the differences between such businesses that finish with different names. We will learn the distinction between a public and a private corporation.
Did you know?
In India, there are two companies that are limited by shares; private limited and public limited company.
Also Read: Difference Between Company vs Partnership Firm vs LLP
Private Limited Company
A private limited joint venture corporation established underneath the Indian Companies Statute, 2013, or any preceding act. The maximum number of members is 200, omitting active and retired employees who were participants during their tenure or who remain members after leaving the company.
The organisation prohibits securities trading and restricts public solicitations to purchase stocks and bonds. The phrase "private limited" appears at the end of its name.
Different Types of Private Limited Company
There are two distinct types of private limited companies:
One person company
A one-person business is one with only one member, and the identity of that individual, who also serves as a director, is written in the company's documentation. One individual can start such a corporation for any authorised reason. He must be a natural or legal person who has lived in the nation for at least a year. A corporation can also be incorporated as a limited liability company or a corporation limited by guarantee.
When a firm meets the following criteria, it is classified as a small business. Its funded investment must not surpass ₹ 50 lakhs, and its prior income statement's revenue must not exceed ₹ 20 crores. Both provisions must be fulfilled, i.e. if the company's funded investment is ₹ 38 lakhs but sales are more than ₹ 2 crores, the firm will no longer be classified as a small business.
Public Limited Company
A public limited company (PLC) is a joint-venture company formed and established underneath the Indian Companies Statute, 2013, or any previous act. These businesses can be exchanged openly, which means stock exchanges will allow them to sell their stock to the general public.
The maximum number of members a corporation can have is also not fixed. Moreover, the shares' transferability is unfettered. Because it can entice the public to register for shares and bonds, the term "Public Limited" is attached to the corporation's name.
Also Read: What Is the Right Type of Partnership for You?
Private Company vs Public Company
Let us figure out how a private limited company and a public limited business differentiate from one another now that we understand what they are.
- The minimum number of individuals allowed.
A minimum of seven individuals are needed to form a public limited company, whereas a private limited company needs only two individuals to start. As the title implies, limited public corporations are more likely to hire more employees than limited private corporations.
- The maximum number of individuals allowed.
A public limited company can have an indefinite number of investors. According to certain restrictions, the highest stockholders in a private limited company are two hundred, except the firm's prior and current employees.
A public limited business can sell its stock to a limitless number of individuals, but the statistics alter dramatically regarding private limited firms.
- The Beginning of a Business
A public limited company needs to obtain both the Certificate of Registration and the Certificate of Establishment before it may begin conducting trade. A registration certificate is required for a private limited company to begin operations. Unlike a public limited company, a private limited business requires just one registration.
- Minimum subscription
Again, there are certain differences between these two sorts of businesses. A public limited corporation needs to have a specified quantity of funds before selling equity. On the other hand, a private limited company is authorised to transfer stocks and therefore has no formal constraints.
- The Prospectus Publication
A public limited corporation can sell its shares to the common people. It must presumably publish a prospectus or submit a declaration instead of a prospectus before actually selling equity.
By law, a private limited company cannot welcome the public to its gatherings and, as a consequence, may not issue a prospectus. They are unable to persuade the general public to purchase corporate stock. According to the legislation, stockholders are invited to attend gatherings of a public limited company, but this is not the case for limited private corporations.
- Trading of Equity
It is straightforward to trade stock in a public limited company—the Memorandum of Incorporation limits members' ability to trade their shares in a limited private organisation.
- The meeting is mandated by law.
A public limited corporation must hold a formal gathering 6 months before starting activities, and the Commission of companies should receive the mandatory report. According to the laws, a private limited corporation does not need to hold a formal gathering.
- Memorandum of Incorporation.
Memorandum may or may not be present in a public limited company. It can use Table-A of the Organisations Act's Schedule. However, it is not required. A private limited corporation would have its own Memorandum of Incorporation.
- The number of board members
At least three senior executives should be present in the administration of a public limited company. The management of a private limited business must include at least senior executives.
- Approval of the Director
In a public limited company, the directors must sign a formal contract to act as such. The authority of directors is reduced in a privately owned corporation. The directors' authorisation is not requested for anything like this.
- Qualifying Stocks
An individual must hold a certain amount of stocks to be qualified to serve as a director of a public limited company. This restriction does not apply to the directors of a private limited company.
- Retirement of the directors
In a public limited company, at least two-thirds of the board of directors must rotate out of administration. There is no compulsion to quit a private limited company. This could be due to the law's requirement for fewer directors.
- Report on the Year
A public limited corporation must file a yearly report with the Registrar of Companies. It is not required for a private limited company. According to the law, no annual report is needed in this scenario.
- Compensation for directors
Certain rules govern salary payments to directors of a public corporation. There are almost no restrictions in a private limited company.
There are no specific advantages to forming a public limited company, and private limited enterprises are eligible for certain perks and exclusions. Consequently, a private corporation is described as "an incorporated partnership."
- A meeting's quorum
A minimum of 5 members is needed for a public conference. A minimum of two individuals is required in a private company.
- Accounting audits are performed every year.
Public access to the Annual Survey is available. The records of a public limited business are public. Accounting records are not available to non-members of a private limited corporation.
- Returns each year
A private company should also file a statement with the Secretary declaring that the number of individuals does not surpass 50, there is no shareholding or bond from the public, or other individuals control less than 25% of the firm's shares. On the other hand, a public corporation only needs to file the annualised return, not the statement described above.
When a private limited company considers becoming a public corporation, the regulatory process is simple, and the corporation will have more authority. A corporation will no longer carry an investor meeting to enact a special resolution on segment transactions. According to recent statistics published by the Ministry of Corporate Affairs, enterprises rushing toward becoming private organisations have increased dramatically. There is an opportunity for a public firm to revert to a private limited company if it no longer desires to function under the business model. This is possible by repurchasing all existing shares from present investors. The firm is removed from the trading floor where it was originally incorporated once the process is completed. After that, it will resume operations as a private limited corporation. We hope the situation continues to run well and that both sorts of firms continue to operate in their respective zones dictated by the law. When selecting a corporate structure, it is critical to analyse the structure's objective and the benefits and drawbacks of implementing that form.
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