According to Companies Act the definition public limited company and private limited company has made some distinctions between the companies. Although both private and public companies have limited liability, separate legal entity and perpetual succession, they have some clear distinctions. There are lot of differences. The major factor is number of shareholders and shareholding pattern. In Pvt. Ltd. company the share holders comprises of close group of friends and relatives. A Pvt. Ltd. company can not make an offer for public to subscribe it’s shares. Where as a Ltd. company can given an advertisement and invite general public to subscribe for it’s shares. The differences between public limited company and private limited company are discussed below:
Differences Between Private Limited Company and Public Limited Company
- Number of Members: For a public limited company minimum seven (7) and maximum number is limited by number of shares. And In private limited company minimum number of members is two (2) and maximum number of member is fifty (50).
- Subscription of Shares and Debentures: Public limited company can subscribe to public to sell its shares and debentures. It can collect huge amount of capital from the public by selling shares. And Private limited company by its Articles of Association cannot subscribe shares and debentures to the public.
- Commencement of Business: Public limited company cannot start its operation after registration. It requires Certificate of Commencement to start its operation. And Private limited company can start its operation after getting Certificate of Incorporation (registration) from the registrar of Company.
- Transferability of Shares: Public limited company can transfer its shares easily. Shares are transferable. And Private limited company cannot transfer its shares. Registrations are imposed on transfer of shares.
- Minimum Subscription: Public limited company cannot sell shares in the share market until minimum subscription is collected. And Private limited company has no provision to collect minimum subscription.
- Company Name: Public limited company must add the word Limited as the last word after its name. And Private limited company must add the words Private limited (Pvt. Ltd.) As the last words after the name of the company.
- Number of Directors: In public limited company there must be at least three directors in the board of directors. And In private limited company there are two directors in the board of directors.
- Statutory Meeting: Public limited company must convene statutory meeting. It is compulsory to hold statutory meeting and statutory report must be submitted. And Private limited company does not have to convene statutory meeting. As a result, there is no need to submit statutory report.
- Qualified Shares: In public limited company the directors must purchase the number of qualified shares to become directors. And To become directors of private limited company it not mandatory to purchase minimum qualified shares.
- Retirement of Directors: At least 2/3 of the directors of public limited company must retire by rotation. On the other hand, the directors of a private limited company not retire.
- Scope of Business: The scope of public limited company and company ownership is wide and expanding. And the scope of private limited company is limited in known people and places nearby.
- Financial Strength: Since public limited company can subscribe huge amount of capital from the public, it is financially strong and can take large projects. And Private limited company cannot subscribe capital by selling shares. So, its financial position compared to public limited company is less.
- Articles of Association: Each public limited company must have its own Articles of Association. And Private limited company does not have own Articles of Association. They can use schedule I of Company Act as Articles of Association.
- Secrecy of Business Operations: In public limited company many documents have to be submitted to the registrar of Company and to the shareholders in the annual general meeting. So, secrecy is not maintained. And In private limited company many documents and information are not disclosed to the shareholders, hence secrecy can be maintained.