Pvt ltd or public ltd

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Querist : Anonymous

Querist : Anonymous (Querist)

11 September 2011 what is the deference between public limited company and private limited company.
we are going to start a company of real estate which one option is better to register in ROC either pvt ltd or public limited

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 September 2011 Distinction Between A Public Company And a Private Company – Following are the main points of difference between a Public Company and a Private Company :-

1. Minimum Paid-up Capital : A company to be Incorporated as a Private Company must have a minimum paid-up capital of Rs. 1,00,000, whereas a Public Company must have a minimum paid-up capital of Rs. 5,00,000.

2. Minimum number of members : Minimum number of members required to form a private company is 2, whereas a Public Company requires atleast 7 members.

3. Maximum number of members : Maximum number of members in a Private Company is restricted to 50, there is no restriction of maximum number of members in a Public Company.

4. Transerferability of shares : There is complete restriction on the transferability of the shares of a Private Company through its Articles of Association , whereas there is no restriction on the transferability of the shares of a Public company

5 .Issue of Prospectus : A Private Company is prohibited from inviting the public for subscription of its shares, i.e. a Private Company cannot issue Prospectus, whereas a Public Company is free to invite public for subscription i.e., a Public Company can issue a Prospectus.

6. Number of Directors : A Private Company may have 2 directors to manage the affairs of the company, whereas a Public Company must have atleast 3 directors.

7. Consent of the directors : There is no need to give the consent by the directors of a Private Company, whereas the Directors of a Public Company must have file with the Registrar a consent to act as Director of the company.

8. Qualification shares : The Directors of a Private Company need not sign an undertaking to acquire the qualification shares, whereas the Directors of a Public Company are required to sign an undertaking to acquire the qualification shares of the public Company .

9. Commencement of Business : A Private Company can commence its business immediately after its incorporation, whereas a Private Company cannot start its business until a Certificate to commencement of business is issued to it.

10. Shares Warrants : A Private Company cannot issue Share Warrants against its fully paid shares, Whereas a Private Company can issue Share Warrants against its fully paid up shares.

11. Further issue of shares : A Private Company need not offer the further issue of shares to its existing share – holders, whereas a Public Company has to offer the further issue of shares to its existing share – holders as right shares. Further issue of shares can only be offer to the general public with the approval of the existing share – holders in the general meeting of the share – holders only.

12. Statutory meeting : A Private Company has no obligation to call the Statutory Meeting of the member, whereas of Public Company must call its statutory Meeting and file Statutory Report with the Register of Companies.

13. Quorum : The quorum in the case of a Private Company is TWO members present personally, whereas in the case of a Public Company FIVE members must be present personally to constitute quorum. However, the Articles of Association may provide and number of members more than the required under the Act.

14. Managerial remuneration : Total managerial remuneration in the case of a Public Company cannot exceed 11% of the net profits, and in case of inadequate profits a maximum of Rs. 87,500 can be paid. Whereas these restrictions do not apply on a Private Company.

15. Special privileges : A Private Company enjoys some special privileges, which are not available to a Public Company.

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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11 September 2011 Exemptions and privileges Available to a private company under Companies Act

There are mainly two type of companies Private and Public. Both form is suitable and depends upon the nature and size of the business. A Private limited company is however has some reliefs and exemptions over a public limited company. Private Limited Company must have a minimum number of 2 and a maximum number of 50 shareholders whilst a Public Company needs a minimum number of 7 shareholders with no upper limit. Before commencing any business, a Public Company is obliged to obtain a certificate from the Registrar of Companies, whilst a Private Company can commence its business and exercise borrowing powers immediately upon its incorporation. The shares of a private limited company are not freely transferable and it cannot offer its shares or debentures to public for subscription. However, there are major exemptions and privileges enjoyed by a Private Limited Company under the Companies Act, 1956. These are as follows:

Privileges and Exemptions to a private Limited Company

Section 70(3)

Statement in lieu of prospectus need not be delivered to the registrar before allotting shares (Exemption/privilege under this section is also available to a private company, which is subsidiary of a public company).

Section 77(2)

Financial assistance can be given for purchase of or subscribing for its own shares in its holding company.

Section 81(3)

Further shares can be issued without passing special resolution or obtaining central government’s approval and without offering the same necessarily to existing shareholders (Exemption/privilege under this section is also available to a private company, which is subsidiary of a public company).

Section 90(2)

Provisions as to kinds of share capital (sec.85), further issue of share of capital(sec.86), voting rights(sec 87), issue of shares with disproportionate rights (sec 88) and termination of disproportionate excessive rights (sec 89).

Section 149(7)

Business can be commenced immediately on incorporation without obtaining a certificate of a commencement from Registrar (Exemption/privilege under this section is also available to a private company which is subsidiary of a public company).

Section 165(10)

It is not necessary to hold a statutory meeting and to send statutory report to shareholders and file the same with Registrar (Exemption/privilege under this section is also available to a private company which is subsidiary of a public company).

Section 170(1)

Articles of private company may provide for regulations relating to general meetings without being subject to the provisions of sections 171 to 186.

Section 198(1)

Any amount of managerial remuneration can be paid and the same is not restricted to any particular proportion of the net profits.

Section 204(6)

Private company can appoint a firm or body corporate to an office or place of profit under the company.

Section 252(2)

Private company need not have more than two directors.

Section 255(1)

A proportion of directors need not retire every year.

Section 257(2)

Statutory notice, etc., is not required for a person to stand for election as a director.

Section 259

Central Government’s sanction is not required to affect increase in the number of directors beyond 12 or the number fixed by articles of association.

Section 263(1)

In passing resolution for election of directors, all directors can be appointed by a single resolution.

Section 264(3)

Consent to act as director need not be filled with registrar.

Section 266(5)

Restriction on appointment or advertisement of directors as regards consent and qualification of shares does not apply.

Section 268

Central Government’s sanction is not required to modify any provision relating to appointment of managing, whole-time or non-rotational directors.

Section 269(2)

Central Government’s approval is not required for appointment of managing or whole-time director or manager.

Section 273

Directors of a private company need not posses any share qualifications, in terms of sections 270.

Section 275 to 279

Restrictive provisions regarding total number of directorships which any person may hold do not include directorships held in private companies which are not subsidiary of public company.

Section 293(1)

Certain restrictions on powers of board of directors do not apply.

295(2)

Prohibition against loans to directors does not apply.

Section 300(2)

Prohibition against participation in board meetings by interested director does not apply.

303(1)

Date of birth of director need not be entered in the register of directors.

Section 309(9)

There is no restriction on remuneration payable to directors.

Section 310

Any change in restriction on remuneration payable to directors also does not require Government’s approval.

Section 311

Any increase in the remuneration not being sitting fees beyond specified limit of directors on an appointment or reappointment does not require central government’s approval.

316(1) & 317(4)

There is no restriction on appointment of managing director.

Section 349, 350 & 355

Provisions relating to method of determination of net profits and ascertainment of depreciation do not apply.

Section 370(2)

There is no restriction on making loans to other companies.

Section 372(14)

There is no prohibition against purchase of shares, etc., in other companies.

Section 388A

Provisions of sections 386 and 387, which restrict the number of companies of which a person can be appointed as manger, remuneration of the manager, etc., and also provisions of sections 269, 310,311,312 and 317, do not apply.

Section 409(3)

Central Government cannot exercise its power to prevent change in board of directors which is likely to affect the company prejudicially.

Section 416(1)

Person can enter into contract on behalf of company as undisclosed principle and need not give intimation to the other directors.

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