Limited

Company vs

Private

Limited

Company

A private limited company is one that is owned privately by a group of private individuals. A limited company is a public limited company that is owned by the general public. All the shares of a private limited company rest only in the hands of a few people or promoters. Most of the shareholders in a private limited company will consist of very close groups of relatives or friends. On the other hand, the shareholders in a limited company are the public. A private limited company cannot list its shares in the stock exchanges, which means that it cannot be offered to the general public. If at all a shareholder wants to transfer the shares, he should have the approval of other shareholders. For limited company shares, they are listed in the stock exchange and any person can buy and sell them. The limited company can also invite the public to subscribe to its shares, whereas it is not possible with a private limited company. In order to start a private limited company, there is only the need for two shareholders. But a minimum of 50 shareholders is needed for starting a limited company. In terms of legal formalities, the limited company has to follow certain stringent rules, which are not applicable for private limited company. The limited company has to hold meetings and also file regular reports to the Registrar. This is not mandatory with a private limited company. In terms of directors, the limited company should have three directors whereas private limited companies should have at least two directors.

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Summary A private limited company is one that is owned privately by a group of private individuals. A limited company is a public limited company that is owned by the general public. Most of the shareholders in a private limited company will consist of very close groups of relatives or friends. On the other hand, the shareholders in a limited company are the public. A private limited company cannot list its shares in the stock exchanges, but, a limited companys shares are listed in the stock exchange and any person can buy and sell it. If at all a shareholder in a private limited company wants to transfer the shares, he should have the approval of other shareholders. The limited company has to follow certain stringent rules, which are not applicable for private limited company.

The following are the main points of distinction between a private limited company and a public limited company : 1. Minimum number of members

The minimum number of members to constituted a private company is two but a public company cannot be formed unless there are at least seven members. 2. Maximum number of members The maximum number of members is case of a private company is fifty but there is no maximum limit of members for a public company. It can have members equal to the number of shares issued by it. 3. Issue of Prospectus A private company cannot invite public to subscribe to its shares or debentures by issue of prospectus for inviting public to subscribe to its shares or debentures. Membership of a private company is restricted to friends because it cannot invite public to subscribe to its shares. 4. Transfer of shares The transfers if shares is generally restricted by the articles of association of a private company. But the shares of a public company are freely transferable to subscribe to its shares. 5. Commencement of business A private company can allot shares and commence business after getting the certificate of incorporation from the Registrar of Companies. But a public limited company cannot allot shares unless it has collected minimum subscription and has received at least 5 % of the nominal amount of shares applied in cash on application. It can commence business only after getting the certificate of commencement of businesses. As per recent guidelines issued by Central Government, the minimum subscription in case of public or right issue of shares or debentures, has been fixed at 90 % of the entire issue. Such subscription must be raised within 90 days of the close of issue. 6. Number of directors A private limited company must have at least two directors whereas a public limited company is required to have at least three directors. 7. Quorum for meetings The quorum for a meeting of a private company is two while five members constitute a quorum in case of a public company. 8. Use of the word 'Limited' In case of a private company, the word 'Private Limited' must be used at the end of the name of a company. But the word 'Limited' is used at the end of the name of public company. 9. Legal formalities

A private limited company is required to observe a less number of legal formalities as compared to a public company. For example, a private company is not required to call a statutory meeting and to file a statutory report to the Registrar of Companies. A private company need nit send the list of directors, a director's consent to act as such, a director's contract to take up qualification shares etc, to the Registrar of Companies. 10. Restriction regarding managerial remuneration Public limited companies cannot pay managerial remuneration in any financial year more than 11 % of the net profits of the company for that financial year. But no such restrictions applies in case of a private limited company.