What is a Private Limited Company & a Public Limited Company?
Under the provisions of Section 2(68) of the Companies Act, 2013, a Private Limited Company means a Company, which by its articles-
Under the provisions of Section 2(71) of the Companies Act, 2013, a Public Limited Company means a Company, which is not a Private Company.
- Restricts the right to transfer its shares;
- except in case of one person Company, limits the number of its members to two hundred;
Provided that where two or more persons hold one or more shares in a Company jointly, they shall be treated as a single member:
Provided further that-
- Persons who are in employment of the Company; and
- Persons who, having been formerly in the employment of the Company, were members of the Company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and
- Prohibits any invitation to the public to subscribe for any securities of the Company.
Provided that a Company which is a subsidiary of a Company, not being a Private Company, shall be deemed to be a public Company, even where, such subsidiary Company continues to be a Private Company in its articles.
Salient features of a Private & Public Limited Company:
Advantages of Private / Public Limited Companies
- Limited Liability;
- Perpetual Succession;
- Separate legal entity;
- The day to day management and business is looked after by the Board of Directors;
- Can sue and be sued by other parties in its own name;
- In case of Private limited Companies transfer of shares carry restrictions. However, for public limited Companies the shares are freely tradable.
- In case of a Private Limited Company atleast two members are required subject to the maximum limit of 200 members. However, in case of a Public Limited Companies, the minimum number of members must be 7 & there is no restriction on the upper limit on the number of members.
- In case of a Private Limited Company atleast two directors are mandatory to be appointed. However, in case of a Public Limited Companies, the minimum number of directors to be appointed is 3.
- As per the provisions of Section 149 of the Companies Act, 2013, a Company may have a maximum of fifteen Directors and a Company may appoint more than fifteen Directors after passing a special resolution.
Limitations/ Shortcomings of Private / Public Limited Companies
- Limited liability;
- Separate legal entity;
- Perpetual succession;
- Better capital base as compared to other forms of business;
- Better credibility and availability of other means of finances over other forms of businesses;
- Better management skill and business techniques;
- Better disclosure norms and effective corporate governance in case of Listed Companies.
FAQs on Private & public Limited Companies
1. Why do startups prefer private or public limited companies?
- Expensive to maintain statutory records as compared to other forms of business;
- Mandatory appointment of auditors and numerous statutory compliances;
- In case of Listed Companies strict compliance of corporate governance norms and stringent disclosure requirements;
- Winding up is permitted only on following the tedious procedure as prescribed under the Companies Act, 2013;
- In addition to Companies Act, 2013, Private and Public Companies are regulated by numerous regulators. Hence, cost of compliance of regulations is substantial.
Startups prefer Private or Public Limited Companies so that they can raise venture capital funding and offer their best employees stock options. Funding and stock options enable the startups to build themselves into large scale businesses. Banks and other lenders would also much rather lend to Private & Public Limited Companies, as compared to sole proprietors.
2. How many shareholders can be there in a Private and a Public Limited Company?
A Private Limited Company must have atleast 2 members but the maximum number can exceed upto 200 shareholders. However, a Public Limited Company must have at least 7 shareholders and there is no such limit in case of maximum number of shareholders.
3. How many Directors can be there in a Private and a Public Limited Company?
A Private Limited Company must have atleast 2 Directors on its board. A Public Limited Company must have at least 3 Directors on its board. The maximum number of Directors that can be appointed in Companies is 15 and the said limit can be increased by way passing a special resolution.
4. What is the procedure and/ or documents required for the registration of a Company?
The procedure to get a Company registered is as under:-
Following are the documents required for the registration of a Company:-
- The proposed directors/ promoters are required to obtain Digital Signature Certificate (DSC ) & Director’s Identification Number (DIN);
- To get the approval for the name from the Registrar of Companies (Roc), the proposed directors/ promoters shall give 6 proposed names for the Company with the words ending with ‘Private limited’/ ‘Limited’ as the case may be;
- After the receipt of the approval for the name of the Company from the RoC , the Memorandum of Association (MoA) and the Articles of Association (AoA) shall be prepared along with other related documents;
- Thereafter, application for incorporation shall be filed with the Registrar of Companies together with the requisite documents including the MOA & AoA order to get the Certificate of Incorporation.
- Scanned copy of PAN/ residential address proof along with a photograph, mobile no. & Email ID in order to get the Digital signature of the proposed Member/ Director (attested by a gazetted officer);
- Scanned copy of PAN/ residential address proof such as Election ID, Voter ID, Passport, Aadhar Card, etc (One of them - self attested);
- Scanned copy of Latest Bank Statement/Telephone or Mobile Bill/Electricity or Gas Bill (self attested);
- Proposed name for the Company (as per MCA & trademark regulations);
- Draft MOA & AOA for incorporation;
- Requisite affidavits for incorporation;
- Scanned copy of Notarized Rental Agreement in English/ No-objection Certificate from property owner/ Sale Deed/ Property Deed in English (in case of owned property).
The Director must self-attest all his personal documents. In case of foreign nationals and NRIs, all the documents must be notarized (if currently in India or a non-Commonwealth country) or apostiled (if in a Commonwealth country).
Your registered office need not be a commercial space; it can be a residence, too.
5. What is a DSC?
The DSC is an instrument issued by certifying authorities by which a person can sign documents electronically. As all documents needed are electronic, directors need a DSC.
6. What is Memorandum of Association & Articles of Association?
These documents contain the rules and define the nature of business, roles, responsibilities and powers, etc. of the Shareholders and Directors.
7. Does a person need to be physically present during this process?
No, new company registration is a fully online process. As all documents are filed electronically, you would not need to be physically present for the purpose of registration of a Company.
8. How much capital is required for incorporating a Company?
As per the amended provisions of the Companies Act, 2013, a Company may be incorporated with ‘Nil’ paid-up capital, i.e., no capital is required in a Company at the stage of incorporation of the Company.
9. What regulatory requirements are placed on Companies?
As the shares of the Private Limited Companies as well as unlisted Public Companies, are not listed on any Stock Exchanges, the compliances required to be followed by them are comparatively fewer as compared to that of Listed Companies. Further, certain exemptions are available to Private Limited Companies and thereby, the Compliances are even lesser as compared to that of Public Limited Companies
10. What are the rules for picking a name for a Private Limited Company?
The applicant is required to follow the naming guidelines as provided under the provisions of the Companies Act, 2013 along with the trademark rules under the Intellectual Property Rights (IPR).
11. Is it necessary to have company's books audited?
Yes, a Company is required get its books of accounts audited by an auditor. Infact, the Company is required to appoint the auditor within a period of 30 days of its incorporation.
- Our organization will guide you to obtain DSC and DIN which are the first and the foremost requirements for incorporating a Company.
- Our experts will further guide you to choose a distinctive name (including trademark, if any) for the proposed Company.
- Our experts will do the requisite documentation such as the preparation of the MOA, AOA and the Affidavits, as required under the incorporation procedure as laid down under the Companies Act, 2013 and the Rules made there under.
- Our team will file all the requisite forms/ documents for incorporation with the Registrar of Companies and will follow up the status of the certificate of incorporation.
- On incorporation of the Company, our team members will guide and assist you to ensure statutory compliances and also, to obtain PAN/ TAN in the name of the Company.
- Our team members will further guide you as to what registration(s) you need to take, whether Service Tax, VAT, Import/Export Code, etc. along with the documents related thereto.
- Our experts will offer their complete support for future statutory/ business related compliances.