Following are the main points of distinction between a private and a public company:
1. Minimum number of members:
The minimum number of members required to form a private company is 2, whereas for a public company at least 7 members are needed. [Sec. 12(1)]
2. Maximum number of members:
ADVERTISEMENTS:
The maximum number of members in a public company is unlimited. But a private company cannot have more than 50 members excluding the past and present employees of the company.
3. Minimum paid up capital:
A private company must have a minimum paid up capital of Rs. lakh whereas the minimum paid up capital prescribed for a public company is Rs. 5 lakh.
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4. Invitation to public:
A private company is prohibited to invite public to subscribe to its share capital. It need not issue a prospectus. But a public company can invite the public to subscribe to its shares or purchase its shares.
5. Deposits from public:
A private company cannot accept deposit from the public i.e. other than its shareholders, directors and their relatives. But a public can invite and/or accept deposits from the public.
6. Issue of prospectus:
ADVERTISEMENTS:
A private company cannot issue a prospectus to the public whereas a public company cannot proceed to allot shares until it files a copy of the prospectus, or a statement in lieu of prospectus with the Registrar in those cases where prospectus is not issued.
7. Right issue of share:
A private company is not required to observe restrictions imposed by the Companies Act as to the issue of right shares. It can offer new shares to outsiders. But a public company has to follow the requirement as to right offer of shares to issue new shares.
8. Commencement of business:
A private company may proceed to allot shares and commence business immediately after incorporation. (Sec. 149) But a public limited company cannot proceed to allot shares unless it has collected minimum subscription and has received at least 5% of the nominal amount of the shares in cash on application. (Sec. 69) It cannot take up any business till the grant of certificate of commencement of business to it by the Registrar.
9. Statutory Meeting:
Unlike a public limited company, a private company is not required to hold statutory meeting and to file the statutory report.
10. Transferability of shares:
ADVERTISEMENTS:
Articles of Association of a private company imposes restrictions on the transfer of shares. But the shares of a public company are freely transferable.
11. Directors:
A public company is required to have at least three directors while a private company may have only two. Unlike a public company a private company need not file director’s consent in writing to act as such and his consent to take up qualification shares. Several restrictions of the Companies Act which curtail the powers of the directors of public companies do not apply to the directors of private companies.
Directors of a private company need not retire by rotation. (Sec. 255) They may be appointed on permanent basis. Unlike the public companies, the directors of a private company may be appointed embolic by a single resolution.
A private company can increase the number of its directors to any extent, without the permission of the Central Government. The directors of a private company may participate in the proceedings of a meeting where the director’s interest is being discussed and may also exercise his vote on a contract in which he is interested.
12. Restrictions regarding managerial remuneration:
Restrictions with regard to the payment of managerial remuneration do not apply to private companies. Unlike the public companies which cannot pay more than 11% of the net profits by way of managerial remuneration, private companies are free to spend any amount on its management.
Besides these points of distinction, a private company enjoys a large number of legal exemptions and privileges which are not available to public companies.