Difference between a Public Company and a Private Company

The distinction between a public company and a private company are explained in the following manner:

1. Minimum number of members

The minimum number of person required to form a public company is seven, whereas in a private company their number is only two.

2. Maximum number of members

There is no limit on the maximum number of member of a public company, but a private company cannot have more than fifty members excluding past and present employees.

3. Commencement of Business

A private company can commence its business as soon as it is incorporated. But a public company shall not commence its business immediately unless it has been granted the certificate of commencement of business.

4. Invitation to public

A public company by issuing a prospectus may invite public to subscribe to its shares whereas a private company cannot extend such invitation to the public.

5. Transferability of shares

There is no restriction on the transfer of share In the case of public company whereas a private company by its articles must restrict the right of members to transfer the share.

6. Number of Directors

A public company must have at least three directors whereas a private company may have two directors.

7. Statutory Meeting

A public company must hold a statutory meeting and file with the register a statutory report. But in a private company there are no such obligations.

8. Restrictions on the appointment of Directors

A director of a public company shall file with the register a consent to act as such. He shall sign the memorandum and enter into a contact for qualification shares. He cannot vote or take part in the discussion on a contract in which he is interested. Two-thirds of the directors of a public company must retire by rotation. These restrictions do not apply to a private company.

9. Managerial Remuneration

Total managerial remuneration in the case of public company cannot exceed 11% of net profits, but in the case of inadequacy of profit a minimum of Rs. 50, 000 can be paid. These restrictions do not apply to a private company.

10. Further Issue of Capital

A public company proposing further issue of shares must offer them to the existing members. A private company is free to allot new issue to outsiders.

11. Name

A private company has to use words ‘private limited’ at the end of its name. But a public company has to use only the word ‘Limited’ at the end of its name.