Differences between a Private vs Public Company

The main categories of difference are trading of shares, ownership (types of

investors), reporting requirements, access to capital, valuation considerations, and
risks.

Access to Capital and Liquidity

Being able to access public markets to raise new money, as well as the benefit of
liquidity (being able to easily sell shares), is the biggest benefit for public companies.
When a business undergoes an Initial Public Offering (IPO) with the aid of investment
banking professionals, it becomes much easier to raise additional funds. The funds can
be used for growth, mergers and acquisitions, or other corporate purposes.

Once the company is listed, investors can easily move in and out of the stock by
buying and selling shares that trade on the stock exchange.

Reporting Requirements

Public disclosure requirements are another main difference between the two types of
businesses and a major drawback of being public.

As a publicly listed company in the U.S. (i.e., stock trades on a U.S.-based exchange),
you are required to file quarterly financial reports (10-Q) and annual reports (10-k)
and several other disclosure documents.

Learn more about disclosure requirement for public companies here.

Valuation of a Private vs Public Company

Publicly traded businesses are much easier for market analysts and investors to value
than their private counterparts. The main reason is due to the value amount of
information that’s readily available, thanks to the reporting requirements (discussed
above), as well as equity research reports and coverage by equity research analysts.

Both types of companies can be valued using the same three methods: comparable
company analysis, precedent transactions, and discounted cash flow (DCF) analysis.
Financial modeling via DCF analysis is the preferred method of valuing both types of
businesses. However, for a private company, it will be almost impossible without
access to internal company information.

Differentiate between public limited company and private limited

company
Public companies – Ownership rights (Shares) are traded on the stock exchange. Anyone can have part
ownership of the company i.e. BT, Microsoft. Their accounts need to be audited and are of public
information
Private company – Ownership is usually just a few people. These are commonly smaller businesses.
Their shares are not traded on the stock exchange. Their accounts don’t need to be audited, and their
financial statements are private
Minimum Paid-up Capital
Public limited company
Minimum paid-up capital of Rs. 5,00,000
Private limited company
Minimum paid-up capital of Rs. 1,00,000.
Minimum number of members
Public limited company
Minimum number of members 7
Private limited company
Minimum number of members 2
Maximum number of members
Public limited company
Unlimited number of members
Private limited company
Maximum number of members 50
Transerferability of shares
Public limited company
No restriction
Private limited company
Can not transfer
Sales of shares
Public limited company
Public limited company can sell their shares
Private limited company
Private limited company cannot sell their shares
Allotment of shares
Public limited company
Restriction on minimum
Private limited company
No restriction
Issue of Prospectus
Public limited company
Public Company can issue a Prospectus
Private limited company
Private Company cannot issue Prospectus
Number of Directors
Public limited company
Public Company must have at least 3 directors
Private limited company
Private Company may have 2 directors
Company Name
Public limited company
Use title LIMITED
Private limited company
Use title PRIVATE LIMITED
Consent of the directors
Public limited company
Consent was essential
Private limited company
No need to consent
Qualification shares
Public limited company
Sign required for an undertaking
Private limited company
No need to sign an undertaking
Commencement of Business
Public limited company
Cannot start its business until a Certificate to commencement of business is issued
Private limited company
Start business after its incorporation
Promoters
Public limited company
7 promoters are required
Private limited company
2 promoters are required
Further issue of shares
Public limited company
Has to offer further shares to general public
Private limited company
No need to issue further shares
Statutory meeting
Public limited company
Compulsory to call statutory meeting
Private limited company
Not compulsory to call statutory meeting
Quorum
Public limited company
Minimum 5 members required
Private limited company
Minimum 2 members required
Tax
Public limited company
Relief available tax
Private limited company
No relief available for tax
Managerial remuneration
Public limited company
Should not increase by 11 %
Private limited company
No restriction on private limited company
Special privileges
Public limited company
No special privilege available
Private limited company
Special privilege available
Dissolution

Public limited company

Dissolved by court
Private limited company
Can be easily dissolved by members

A company is defined as an association of people which is formed to achieve a common goal and it
should be incorporated under the law. In India, companies are governed by the Indian Companies Act,
2013. The Companies Act is passed by the central government of the country to regulate the activities of
companies to provide protection to investors.

Indian Companies Act, 2013 defined company as “A Company formed and registered under this
Companies Act or under any previous company law”. Every company which is registered under Indian
Companies Act, exhibits certain special characteristics, such as it is regarded as an artificial person having
a separate legal entity and it should be incorporated with the Registrar of Companies and it contains a
Common Seal(Stamp) under its name, etc.

The companies are of various types and Based on Membership, it is divided into One Person
Company(OPC), Private Company (Pvt Ltd) and Public company (Ltd). There are several differences
between Private Company and Public Company which many of us don’t know, This article concentrates
on differentiating the Private and Public limited companies.
PRIVATE COMPANY

According to the Companies Act, 2013 “A Private company is a company which has a minimum paid-up
capital of 1 lakh rupees and which is restricted to have the right to transfer of share”. The Private Limited
company has “Pvt.Ltd” at the end of its name.

PUBLIC COMPANY

According to the Companies Act, 2013 “A Public company is a company which is not a private company
and has a minimum paid up capital of 5 lakh rupees and have the right to transfer of shares of
a company”. The Public Limited company has “Ltd” at the end of its name.

COMPARISON TABLE
PUBLIC COMPANY PRIVATE COMPANY

A Private company has "Pvt.Ltd" at the end of its name. A Public company has "Ltd" at the end of its name.

Minimum number of members

The minimum number of members needed to form a private The minimum number of members needed to form a Public Company
company is at least 2 members. is at least 7 members.

Maximum number of members

The Maximum number of members in a Private Company is The Public Company have no restriction on a maximum number of
restricted to 200. members.

Minimum Paid-up Capital

Private Company should have a minimum paid up capital of Public Company should have a minimum paid up capital of 5 lakh
1 lakh rupees. rupees.

Commencement of Business

Commencement of business of a Private Company takes

A Public Company can only Commence its business after receiving a
place immediately after getting the certificate of
certificate of incorporation and Certificate to commencement.
incorporation.

Number of Directors

A Private Company must have at least 2 directors to head A Public Company must have at least 3 directors to manage and lead
and supervise the affairs of the company. the affairs of the company.

Issue of Prospectus

A Private Company cannot issue a Prospectus. Private

Public Company can issue a Prospectus. Public Company is free to
Company is not allowed for inviting the public for
subscription of its shares. invite public for subscription of its shares.

Minimum Subscription

A Private Company can allot shares without waiting for the A Public Company cannot be able to allot shares before the minimum
completion of minimum subscription limit. subscription of shares is completed.

Transferability of shares

The Articles of Association of a Private Company lays

The Public Company is free to transfer the shares of its company from
restriction on transfer of the shares from one person to
one person to another.
another person.

Quorum

A Private Company is obligated to have at least 2 members A Public Company is obligated to have at least 5 members personally
personally present for holding the company meeting. present to constitute the meeting.

Statutory meeting

A Private Company is not required to conduct a Statutory

A Public Company is required to conduct a statutory Meeting and file
Meeting of the members or filing of Report to the Register
the Report to the Register of Companies.
of Companies.

Managerial remuneration

There are some restrictions on payments and remunerations offered to

There are no restrictions on payments and remunerations
the directors or managers and the remuneration should not exceed
offered to the directors or managers of a Private Company.
11% of the net profits.
CONCLUSION
From the above discussion, it is evident that there are many differences between Private Company and
Public Company. The Companies Act defines the rules and laws that the companies should follow. It
directs the companies to register and incorporated with REGISTRAR OF COMPANIES by submitting
Articles of Association(AoA) and Memorandum of Association(MoA). Read more about Articles of
Association and Memorandum of Association.