On the basis of transferability of shares the companies are divided into two categories, i.e. (1) Private company, and (2) Public company.
(1) Private Company:
According to Indian Companies Act, 1956, a private company is one which by its Articles of Associations :
(i) Restricts the rights of the members to transfer shares.
(ii) Limits the number of members to fifty excluding past or present employees of the company; and
(iii) Prohibits any invitation to the public to subscribe for its shares, debentures and public deposits.
A private company can be formed with a minimum paid up capital of Rs. 1 lakh (subject to change). The minimum number of persons required to form a private company is two. The company is required to add ‘Private Limited’ as part of its name. The company can commence business after getting certificate of incorporation. It can function with minimum two directors. The company need not hold any statutory meeting. There is no need to file prospectus or statement in lieu of prospectus with the Registrar of Companies. The above positive aspects is highly beneficial for entrepreneurs to commence this forum of business.
(2) Public Company:
A public company is one which is not a private company. Therefore, a public limited company can invite the public to subscribe to its shares, debentures and public deposits. There must be at least seven members to form a public company and there is no limit to the maximum number of members. A public company has to use the word ‘Limited’ at the end of its name. At the time of issue of shares a public company must issue the prospectus and also allot its shares within 120 days from issue of prospectus. A public company can only commence business after receiving the certificate of commencement. There is no restriction on the transferability of its shares. The company is formed with a minimum paid up capital of Rs. 5 lakhs (subject to change from time to time).