Difference between a private and public limited company

In India, Private Limited Companies are generally owned by family members or a small group of persons and not open to public for ownership. The general accepted rule is that any company which is not a public company is known as a private company.

The directors and shareholders in a private limited company are frequently the same persons, which is not a case in public limited companies.

Ministry of corporate affairs through their state offices keeps an eye on these registered companies by asking them to audit their accounts and making them more accountable to different laws.

Let us look into different sections of Companies Act 2013, to understand the difference between a private limited company and a public limited company.

private limited and public limited difference

As per the definition of section 2(68) of Companies Act 2013, “Private Company” means a Company, which by its Article,-

  • restricts the right to transfer its shares;
  • Limits the number of its members to 200; and
  • prohibits any invitation to the public to subscribe for any securities of the company;

Note: –

  1. Joint holders shall be counted as one.
  2. (a) Employees holding shares; and (b) Person formerly in employment were, who members during such employment and still continue to be the members shall not be counted in the limit of 200.
Particulars Private Limited Company Public Limited Company
Minimum Number of Share Holders 2 7
Maximum Number of Shareholders 200 No Limit
Transferability of Shares With Restriction (articles of association impose restrictions on transfers of shares.) No Restriction
Inviting Public Money Prohibited No such Prohibition
Minimum Number of Directors 2 3
Managerial Remuneration Restrictions Not Applicable Restriction Applies
Term Used at the end of the name Private Limited or PVT. LTD or (P) Ltd Limited or Ltd

Prior to 5th June 2015, there was a requirement of minimum paid up capital to form a private or public company. Such requirement has been withdrawn due to which minimum paid up capital of Rs 1, 00,000 for private limited company and Rs 5, 00,000 for public limited company is no more applicable.

Certificate of Commencement of business is now not required as Companies Amendment Act 2015 has removed such provision from Companies Act 2013.

Editorial Staff at Yourfinancebook is a team of finance professionals. The team has more than a decade experience in taxation and personal finance.