Public Company vs Private Company
This is a guide to Public Company vs Private Company. Here we discuss the Public Company vs Private Company key differences with infographics and a comparison table. You can also go through our other suggested articles to learn more:-
Differences Between a Public Company and a Private Company
Companies can be public and private. The key difference between a public and a private company is that public companies are open to investment by the public. On the other hand, private (or proprietary) companies are not. Being open to investment by the public makes it far easier to raise capital. However, it attracts a much higher level of regulation and compliance to protect potential investors and the general public. Therefore, if you are looking to start a company, choosing the right company structure for your circumstances is essential. This article will explain ten regulatory differences between public and private companies.
The critical difference between public companies and private companies is that public companies can raise funds from the general public by issuing shares, unlike private companies who will have private investors. Public companies offering shares to the general public must provide a disclosure document (such as a prospectus) to potential investors.
By contrast, a private company cannot raise capital from the public unless it meets certain exemptions to the disclosure requirements . If a private company breaks this rule, ASIC can require it to change to a public company. Private companies can also offer their shares to existing shareholders or employees without following the disclosure process. One other exception to this, which is becoming more and more popular, is crowdsourced funding . This is where the company raises capital from the public via a hosting platform. Likewise, a company must meet certain requirements to exempt it from the disclosure requirements, such as there being an investor cap of $10,000 per annum and the preparation of an offer document.
Head to head comparison between Public Company and Private Company (Infographics)
- A public company is a company that is listed in the well-known stock exchange and can be traded freely. Where a private limited company is not listed on a stock exchange and it is held privately by the member of the company.
- In a private company, it is not mandatory to call a statutory meeting of members, whereas it is mandatory to have a statutory meeting in the case of a public limited company.
- There must be a minimum of seven members to form and start a public company, on the other side a private company has a limit of a minimum of two members to start the business.
- There is no capping for the maximum number of members in a public limited company. But a private company cannot have more than 200 members, subject to some conditions.
- To start a public company there should be at least 3 directors and is a privately held company, the minimum number of directors should be 2.
- In a public company, at least 5 members must be present personally at the Annual general meeting (AGM) for the formation of the requisite quorum, whereas in the private limited company at least 2 members should present in the AGM.
- General Public can be invited by the company for the subscription of shares of the public limited company. On the other hand, there is no such thing in a private limited company to invite the general public for the subscription of share
- The issuance of the prospectus is compulsory in the public limited company and for the private limited company, there is no such instance.
- In a private limited company transferability of shares is fully restricted; In contrast, the shareholders of a public limited company can easily and freely transfer their shares.
- A Private Limited Company requires the only certificate of incorporation to start the business, on the other side a public company requires a certificate of incorporation and then the certificate of commencement to start a business.
Key Differences Between Private and Public Limited Company
- The public limited company refers to a company that is listed on a recognized stock exchange and its securities traded publicly in an open market. On the other hand, a private limited company is one that is not listed on a stock exchange, as its stock is held privately by the members.
- A private limited company has to frame its own articles of association, whereas a public limited company has two choices, i.e. either it can frame its own articles or it can adopt Table F.
- When it comes to the transfer of shares, there are restrictions in the articles of association regarding the transferability of the shares of a private company. Further approval of the Board of Directors is needed for such transfer. In contrast, there is no restriction on the transfer of shares in the case of a public limited company i.e. freely traded in an open market called a stock exchange.
Also Read: Difference Between Bombay Stock Exchange and National Stock Exchange
- A private limited company is strictly prohibited from inviting the public to subscribe for its shares or debentures, whereas a public limited company can go for a public subscription to raise capital, through an IPO.
- A private limited company cannot issue a prospectus. It may issue shares by way of private placement by following the procedure given in Part II of Chapter III. Conversely, a public limited company can issue a prospectus by following the procedure given in part I of Chapter III or it can also opt for private placement by following the procedure contained in Part II of Chapter III.
Also Read: Difference Between Private Placement and Preferential Allotment
- A private company can allot shares, even when it has not received a minimum subscription. Oppositely, a public company is restricted from alloting shares to the public unless the minimum subscription stated in the prospectus is received.
- To form a private limited company minimum of two members are required, whereas in the case of a public limited company at least seven members must be there for its formation.
- A private limited company can have a maximum of 200 members, except in the case of one person company, where there is one member. In contrast, in a public limited company, there can be unlimited members.
- At least two adults who act as a director are required at the time of incorporation of a private limited company. As against, a minimum of three directors is required in the case of a public limited company for its incorporation.
- A private limited company can start its business just after receiving the certificate of incorporation, whereas a public company needs a certificate of commencement of business after it has received a certificate of incorporation, to commence business.
- In a private limited company, two or more directors can be appointed by a single resolution, which is not in the case of a public limited company.
- In the case of a private company, directors need not require to file their consent to act as a director. On the other side, in the case of a public company, directors must file their consent with the registrar to act as a director within 30 days of their appointment as a director.
- 2/3rd of the total number of directors of a public limited company must retire by rotation. Conversely, the directors of a private company are not required to retire by rotation, they can be permanent.
- In the case of a private company, 2 members who are present physically at the general meeting, constitute a quorum, irrespective of the number of members. On the other hand, in the case of a public company, to form a quorum:
- 5 members are required to present in person when the number of members as on the date of the meeting is 1000 or less
- 15 members are required to present in person when the number of members as on the date of the meeting is more than 1000 but less than 5000
- 30 members are required to present in person when the number of members as on the date of the meeting is more than 5000.
- Talking about the place of holding Annual General Meeting (AGM), in case of a private company AGM can be held anywhere, whereas in the case of a public company AGM can be held at the registered office of the company or any other place within the city, village or town where the registered office is situated.
Also Read: Difference Between AGM and EGM
- While a private company is not required to organize a statutory meeting, a public must organize a statutory meeting and deliver the report of such meetings to the shareholders and file the same with Registrar.
- Private Limited Company has greater operational flexibility, as compared to Public Limited Company in carrying out affairs of the company. There are a number of requirements and restrictions from which a private company is exempted that apply to a public company.