Private Limited Company vs Public Limited Company

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 companyFeaturesPublic Limited companyPrivate Limited company
DefinitionOwned and traded publicly.Owned and traded privately.
Minimum paid up capitalRs. 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 composition72
Maximum membersNo restrictions. It can have an unlimited number of members in its hierarchy.Restricted by only a maximum 200 participating members.
Minimum no. of directors32
Suffix (mandate to be added in the company name)Limited.The name must necessarily end with ‘Private Limited’.
Mandatory registrationFirst, 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 statementsYes, mandatory.Not a compulsion. Depends on the decision of company directors.
TransparencyThe 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 publicIt 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 meetingCompulsory to call a statutory general meeting.Not a mandate, depends on the company needs.
Transfer of sharesThe shareholders can freely transfer their shares.The share of any member cannot be transferred to anyone unless other shareholders give their consent.
LiabilityThere are restrictions on selling company assets to pay any liabilities.Members or shareholders can sell company assets to pay any debts.

 

Private Limited Company vs One Person Company

The company is a broad term, having varied structures, restrictions, rules and liabilities. It can be public limited, private limited, nidhi company, one person company etc. Among all, one person company is the most unheard of. Comparatively, it is a newer concept in India, but more common in other countries.

Private Limited Company (PLC): It requires minimum two members or shareholders to incorporate. The restriction on a maximum number of shareholders is 200. The shareholders can be persons or companies, including foreign companies. They are further categorised as Private Limited Company – Limited by Shares and Private Limited Company – Limited by guarantee.

One Person Company (OPC): It is mainly a sole proprietorship, having advantages of limited liability and corporatization. It opportune individual entrepreneurs, since OPC can be formed with just one Director and one member.

Private Limited Company and One Person Company are closely similar to each other, in terms of their structure, minimum member requirement, suffix mandates etc.

  1. Both are governed by Companies Act 2013.

  2. Both need to be registered under the Ministry of Corporate Affairs. In other words, ‘Certificate of Incorporation’ is a mandate to start a business.

  3. Both types of companies are separate legal entities. The individual owners, shareholders or members are not liable to pay debts or losses of the business through personal assets.

  4. Taxation rules on income generated from the business are same, as per the rates defined in the provisions of the Income Tax Act.

  5. An auditor is obligatory to be appointed within 30 days from the date of incorporation. This condition is irrespective of share capital or turnover of the company.

Having a base understanding of both the forms, here’s a detailed list of differences between the two:

Features

Private Limited Company

One Person Company

Mandate suffix in company name

Private Limited

OPC Private Limited

Minimum paid-up capital required

There was a limit on minimum capital of Rs. 1,00,000. However, it has been relaxed in the Companies Amendment Act, 2015.

No necessary requirement on minimum capital. However, when minimum capital exceeds Rs. 50 Lakhs, it becomes a mandate to convert OPC to a PLC.

Minimum and maximum number of members

2-200

Minimum and maximum 1 member is allowed.

Minimum and maximum number of directors

2-15

1-15

Conversion

A PLC is inconvertible to OPC.

An OPC can be converted to PLC if it meets any one of the following conditions:

1. It has completed two years after its incorporation.

2. Minimum paid-up capital has exceeded Rs. 50 lakhs.

3. Its turnover has exceeded the threshold limit.

Transferability of shares

Shares can be transferred easily with the consent of other shareholders.

Memorandum of Association needs to be altered to transfer shares.

Board meeting

It is a mandate to hold a quarterly board meeting. The maximum gap between two meetings can be 120 days.

It is a mandate to hold a biannual board meeting i.e. every 6 months. There must be at least 90 days between the two meetings. In case of one director, there is no compulsion of the board meeting.