Ever confused between the two! Let us start with the basics.
What is a company? It is an artificial person, identified by law i.e. it comes into existence through a legal process. It can also be defined as an association of people, forming a separate legal entity, having limited liability, perpetual succession and a common seal.
Limited liability –Every member or shareholder of a company has limited liability i.e.none is individually liable to pay off company debts. Personal assets of individuals involved are not at risk in case the company goes bankrupt.
Perpetual succession –A company continues to run even if any of the member, owner or shareholder goes bankrupt, dies, transfers his shares or exits the company by force or at his own will.
Common seal –It is a rubber stamp having the name and the business number of the company.
Broadly classifying, a company can be of two types: ‘Public Limited’ or simply ‘Limited’ companies and ‘Private Limited’ companies. Both of them can be formed by registering under the Indian Companies Act 2013 or any other previous Act. They are the voluntary associations with differences in their structure, minimum paid up capital, an invitation to the public, no. of restricting rules etc.
|Minimum requirements to start a company||Features||Public Limited company||Private Limited company|
|Definition||Owned and traded publicly.||Owned and traded privately.|
|Minimum paid up capital||Rs. 5,00,000.||There was a limit on minimum capital of Rs. 1,00,000. However, it has been relaxed in the Companies Amendment Act, 2015.|
|Minimum members required for the composition||7||2|
|Maximum members||No restrictions. It can have an unlimited number of members in its hierarchy.||Restricted by only a maximum 200 participating members.|
|Minimum no. of directors||3||2|
|Suffix (mandate to be added in the company name)||Limited.||The name must necessarily end with ‘Private Limited’.|
|Mandatory registration||First, a company must obtain ‘Certificate of incorporation’, then ‘certificate of commencement of Business’.Thereon, it can start its business.||A company can start its business just after receiving a ‘Certificate of incorporation’.|
|Minimum mandatory restrictions while running a company||The issue of prospectus or company account statements||Yes, mandatory.||Not a compulsion. Depends on the decision of company directors.|
|Transparency||The true financial position of the company is clear to owners, investors and shareholders (public). It determines the market value of a company.||Financial statements are internal matters of company owners and shareholders. They are not transparent to the general public.|
|Involvement of public||It can invite the general public to subscribe shares of the company. It can issue registered securities such as Initial Public Offering (IPO) and Follow-on public offer (FPO).||It cannot invite the general public to become a shareholder of the company.|
|A quorum at Annual General Meeting (AGM)||Presence of at least 5 members is required.||At least 2 members should be present in person.|
|Statutory meeting||Compulsory to call a statutory general meeting.||Not a mandate, depends on the company needs.|
|Transfer of shares||The shareholders can freely transfer their shares.||The share of any member cannot be transferred to anyone unless other shareholders give their consent.|
|Liability||There are restrictions on selling company assets to pay any liabilities.||Members or shareholders can sell company assets to pay any debts.|