Difference between Private company and Public Company

Definition of Private Limited Company

A Private Company is an association of persons formed voluntarily, having the minimum paid-up capital of Rs. 1,00,000. The maximum number of members is 50, excluding the current employees and the ex-employees who were the members during their employment or continues to be the member after the termination of employment in the company.

The company restricts the transfer of shares and prohibits invitation to the public for the subscription of shares and debentures. It uses the term ‘private limited’ at the end of its name.

Definition of Public Limited Company

A Public Limited Company is a joint stock company formed and registered under The Indian Companies Act. It is an association of persons formed voluntarily, having a minimum paid-up capital of Rs. 5,00,000.

There is no defined limit on the number of members the company can have. Also, there is no restriction on the transferability of the shares. The company can invite the public for the subscription of shares or debentures, and that is why the term ‘Public Limited’ gets added to its name.

Distinction between a private company and a public company

private company

Difference Private Company Public Company
1. Minimum Numbers The minimum number of members necessary to form a private limited company is 2 or more. A public limited company cannot be formed unless there are at least 7 persons ready and willing to become its members.
2. Maximum number  A private company limited company cannot have more than 50 members. The maximum number of members in a public company is unlimited.
3. Paid-up share capital A private company has to have a minimum paid-up share capital of Rs. 1 lakh. A public company is required to have a minimum paid-up capital of Rs. 5 Lakhs
 4. Invitation to public  A private limited company cannot invite public to subscribe to its share capital. But Public limited company cannot proceed to allot shares until it files a copy of the prospectus.
5. Legal formalities A private company is not required to hold statutory meeting and to file the statutory reports. Public limited company required legal formalities and to file the statutory reports to shareholders and to the government.
6. Transferability of Shares Private company imposes restrictions on the transfer of shares. But public company er freely transferable.
7. Administration A private limited company may have only two. A public limited company is required to have at least three directors.
8. Managerial Remuneration Managerial remuneration does not apply to private limited companies. Private limited companies are free to spend any amount on its managerial remuneration. Public companies which cannot pay more than 11% of their net profits.