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Private Limited vs Public Limited Company

PRIVATE-VS-PUBLIC-COMPANY

There are various types of companies that you may get registered in India. But where lies the difference? How do you differentiate between each one of them? What are the perks that one offers over the other? We are here to solve all your doubts to the best extent and provide you with personalized legal advisory services related to your business entity. Before getting any insights on the battle between registering a Private Limited Company vs a Public Limited Company, let us first understand the concept of the company.

What do you mean by a Company?

A company is a legal entity formed by a group of people who intend to carry out a certain business with pre-defined objectives. In India, it is governed by the Companies Act, 2013.

Core features of a company

Separate Legal entity

The identity of a company is separate from that of its owners, unlike sole proprietorship.

Perpetual Succession

Since the company is a separate entity, its existence is unaffected by the death, insanity, insolvency, or transfer of ownership of the owners.

Limited Liability

Unlike sole proprietorship or partnership, the owners enjoy the perks of limited liability, i.e. it is limited to the extent of capital contributed by them. Their personal property cannot be used to pay off the business debts.

Transferability of ownership

In the case of a company, the entire capital is divided into smaller units known as shares. These shares are freely transferrable, unaffected by the operations of the company. A company allows easy buying and selling of shares.

Independent Management

The management of a company is looked after by a separate group of individuals known as the ‘Board of Directors’. Thus, owners may or may not be a part of the management of the business.

Common Seal

All the contracts entered into by the company are stamped with a common seal. It represents the official approval of the company. Any document that does not contain the common seal, may not be said to be authentic.

Now, let’s address a very common question.

Why a Company over other forms of business entities?

The simple answer to this is the large pool of funds that is facilitated by the company. Due to the individual value of a share being minimal, the capital is divided into a large number of shares. This allows many people to become shareholders, thus, expanding the source of funds. The risk is commensurate to the capital provided. Moreover, a company enjoys perpetual succession due to which its functioning is unaffected by the transfer of ownership!

A company can be classified into various distinct categories on the basis of its ownership criteria, the motive of the business (commercial or social), authorized capital, etc. The major classification made is into Private Limited Company Registration and Public Limited Company Registration.

How is a Private Limited Company different from Public Limited Company?

In a Private Limited Company Registration, the ownership is privately held by the shareholders. Even though the shares can be transferred, the company cannot get listed on a stock exchange for free trading. Such companies are not bound to release their financial reports publicly and are not accountable to the public.

  • There is a minimum of 2 shareholders and a maximum of 200 shareholders.
  • A private company can commence its business after obtaining the certificate of incorporation.
  • There is no minimum subscription level requirement to alot the shares of a Private Limited Company.
  • There is a requirement of at least two directors.
  • The suffix “Private Limited or Pvt. Ltd.” is required at the end of the company name.

Whereas, in a Public Limited Company Registration, the ownership is open to the public. The company is listed on a stock exchange and it issues prospectus (or may use other methods) to invite subscriptions from the public. It is required to release its financial reports publicly since it holds accountability towards its existing as well as potential investors.

  • The minimum number of shareholders is 7, and there is no limit on the maximum shareholders.
  • It is allowed to commence its business after receiving a Certificate of commencement of business (after the certificate of incorporation).
  • It is required to reach a level of minimum subscription (as per the authorized capital) to issue the shares to the interested shareholders.
  • There must be at least three directors.
  • The company is required to add ‘limited’ at the end of its name.

Why register Private Limited Company over Public Limited Company?

Based on your requirements, you can choose between to register a Private Limited Company or register a Public Limited Company. However, some of the benefits of Private Limited Company Registration over Public Limited Company registration are as follows:

LONG TERM GROWTH

The most important reason for choosing a private company is that it is not required to publish its records and reports publicly. It is not accountable to the public. This allows the company to focus on long-term growth rather than frequent earnings that must be paid as dividends to the shareholders of the company.

SMOOTH FUNCTIONING

The company functions smoothly and has greater flexibility due to the lack of strict regulations imposed on a public company.

EASE OF COMMENCEMENT

There is the ease of commencement since it can start its operations immediately after having two shareholders and receiving a certificate of incorporation.

STATUTORY MEETINGS

No requirement of holding statutory meetings, as is required for a public company.

We at VakilGiri, provide you with the best and the most affordable legal services in getting your business registered. Our other services include trademark registration, choosing a business plan, procuring funds, etc. Come become a part of the legal family where we provide a kick start to your business!

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