A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

FINAL DRAFT

A COMPARATIVE ANALYSIS ON PUBLIC COMPANY AND PRIVATE COMPANY

Final research proposition submitted in the partial fulfilment of the course
CORPORATE LAW- I semester 7th in the academic year 2019-20

Submitted to-
Ms Nandita S. Jha
Submitted by-
Anuj Kumar
Roll 1611
4th year, BBALLB

SEPTEMBER 2019
CHANAKYA NATIONAL LAW UNIVERSITY
NYAYA NAGAR, MITHAPUR, PATNA 800001

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.B.A. LL.B (Hons.) Project Report entitle
“comparative analysis on private company and public company” submitted at Chanakya
National Law University, Patna is an authentic record of my work carried out under the
supervision of Ms. Nandita S. Jha. I have not submitted this work elsewhere for any other
degree or diploma. I am fully responsible for the contents of my Project Report.

Name- Anuj Kumar

Roll no- 1611
(Chanakya National Law University)
Signature-

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

ACKNOWLEDGEMENT

I am overwhelmed in all humbleness and gratefulness to acknowledge from the bottom of my

heart to all those who have helped me to put these ideas, well above the level of simplicity and
into something concrete effectively and moreover on time.

I would like to take this opportunity to thank my faculty Ms. Nandita S. Jha, for her invaluable
support, guidance and advice. Her assignment of such a relevant topic made me work towards
knowing the subject with a great interest and enthusiasm.

I owe the present accomplishment of my project to my friends, who helped me immensely with
sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way. I would also like to thank the library staff for working long
hours to facilitate us with required materials going a long way in quenching our thirst for
education. I would also like to extend my gratitude to my parents and all those unseen hands
who helped me out at every stage of my project.

ANUJ KUMAR
7th semester

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

TABLE OF CONTENT
Sr. No. Topic Page no
1 Research Methodology……………………………………………..5
2 Introduction…………………………………………………………6
3 Definition of Private comp and Public comp………………………7
4 Comparative analysis ………………………………………………8
5 Key point differences between Pvt and Public Comp……………..10
6 Conclusion………………………………………………………….13
7 Bibliography………………………………………………………..14

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

RESEARCH METHODOLOGY

Aims and objective

• To understand the concept of company under Indian law
• To under concept of Private and public company
• To carry out comparative analysis on public and private company

Hypothesis

Under Indian law, a public company is given a wider space whereas a private company has
lots of restrictions and rules. A public company is more open in the general domain whereas
Private company has a closed domain which involves limitation of number of shareholders,
limitation of transferability of share etc.

Research methodology

The researcher will emphasize and use the doctrinal method for this project topic. The
researcher will be collecting valuable data from library which includes the written works and
from the field. All these data will help the researcher to solve his research problem. All the
books, journals, articles published in newspapers, bodies, reports. The researcher will make
use of doctrinal. The doctrinal process includes the use of literary source.

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

INTRODUCTION

Under the terms of the Companies Act (1956), which is the company law in India, a company
means a company registered under the present Act of the preceding Acts. Thus, a company
comes into existence only by registration under the Company Law Act.1 So, a company in India
comes into existence only by registration under Company Law act or under any law in India.
In India, corporate affairs are regulated through various Company Law Acts or business laws
in India which are enforced as company laws in India and regulations enforced by the
Government of India and administered by the Ministry of Corporate Affairs (MCA).

The Companies Act of 2013 has done away with the relaxation to private companies in several
provisions. The concept of “not applicable to private company” is no more in existence in the
Act of 2013. Such a move in the Companies Act of 2013 has taken away certain privileges
enjoyed by private companies. The privileges are of two types. One is for the directors and to
their interest and the second one is for the private company itself. The Directors were hitherto
enjoying certain pleasure from the application of certain provisions are now withdrawn.
Further, the Companies Act, 2013 have mandated certain new requirement like that of internal
audit to both public and private companies.

1
http://www.mca.gov.in/SearchableActs/Section2.htm

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

DEFINITIONS OF PRIVATE COMPANY AND PUBLIC COMPANY

Private company:2

Private company according to Company Act 2013 means a company, by its article:

• restricts the right to transfer its shares, if any;

• limits the number of its members to fifty not including.3

In simple words, the private limited company is a joint stock company. However, it is governed
under the ambit of the Indian Companies Act, 2013. It is formed by voluntary association of
persons with a minimum paid up capital of 1 lakh rupees. While the maximum number of
members is 200, it does not include the current employees or ex-employees who were members
during their employment terms. Employees may continue to be the member after their
termination of employment in the company. Transfer of shares is restricted. It prohibits the
entry of public through subscription of shares and debentures. The term private limited is used
at the end of its name.

Public company: 4

Public company according to Companies Act 2013 means a company which is not private. A
public limited company is a joint stock company. It is governed under the provisions of the
Indian Companies Act, 2013. While there is no limit on the number of members, it is formed
by the association of persons voluntarily with a minimum paid up capital of 5 lakh rupees.
Transferability of shares have no restriction. The company can invite public for subscription of
shares and debentures. The term public limited is added to its name at the time of incorporation.

2
Sec 2(68) Companies Act 2013
3
https://legaldocs.co.in/blog/private-limited-company-vs-public-limited-company
4
Sec 2(71) Companies Act 2013

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 A COMPARATIVE ANALYSIS ON PUBLIC AND PRIVATE COMPANY

COMPARATIVE ANALYSIS BETWEEN PRIVATE COMPANY AND

PUBLIC COMPANY5

Sr.no Section Brief description Private limited Public company

company limited
1 2 Meaning Minimum capital Minimum Capital: Rs.
required: 100000 500000Subsidiary of a
Right to transfer Public Co. is deemed to
share: Restricted be a public Co.
2 2 Small company If Paid-up Share Not Applicable
Capital does not
exceed Rs. 50 Lakhs
and Turnover as per
Last Audited accounts
does not exceed Rs. 2
Crore
3 3 Minimum 2 (Two), Maximum 7 (Seven)
Members 200 (Two Hundred)
Required
4 4 Name of the “Private Limited” as “Public Limited” as Last
Company Last Word Word
5 5 Provision of To be agreed and To be agreed and
entrenchment in approved by all the approved through a
the Articles members Special Resolution
6 23 Issue of By way of Right Issue To Public through
Securities or Bonus Issue Prospectus (“Public
Through Private Offer”) By way of Right
Placement Issue or Bonus Issue
Through Private
Placement

5
https://taxguru.in/company-law/comparison-private-public-limited-company-companies-act-2013.html

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7 29 Public Offer to be Not Applicable In case of public offer of

in Dematerialised securities, the securities
Form have to be in
Dematerialised Form
9 40 Securities in Not Applicable Securities offered in
Public Offer to be Public Offer, to be listed
listed in Stock in Recognised Stock
exchanges Exchanges
10 67 Purchase / Loan Not allowed to Not allowed to Purchase
for Purchase of Purchase its own its own Shares; No
Own Shares Shares Financial assistance to
be given to purchase its
own shares
11 73 Acceptance of Not allowed to accept Allowed if Paid up
Deposits deposit share capital is Rs. 100
Crore or more or
Turnover of Rs. 500
Crore or more
12 103 Quorum of Two members Five in case of Members
Meetings personally present up to 1000; Fifteen in
case of Members more
than 1000, up to 5000;
Thirty in case of
Members exceed 5000.
13 138 Internal Audit Applicable in case of Applicable in case of: 1.
:1. Turnover >= Rs. Paid Up Capital >= Rs.
200 Crore in 50 Crore in the
preceding financial preceding financial year,
year, OR 2.Turnover >= Rs. 200
2.Loans from bank or Crore in preceding
NBFCs >= Rs. 100 financial year, OR
Crore in preceding
3. Loans from bank or
financial year
NBFCs >= Rs 100Crore

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in preceding financial
year, OR

4. Public Deposit >= Rs.

25 Crore in preceding
financial year

14 134(3)(p) Annual Not Applicable If Paid up share capital

Evaluation in the is Rs. 25 Crore or more,
Board’s Report the details of annual
evaluation in the
Board’s Report
15 139(2) Rotation of Applicable in case of Applicable in case of
Auditor Paid up Capital is Rs. Paid up Capital is Rs. 10
20 Crore or more Crore or more
16 149 No. of Directors 2 (Two); Not required 3 (Three); andIn case of
and Independent to appoint Listed Companies, at
Directors independent director least One-Third as
independent directors
17 152 Retirement by Not Applicable At least two-third of
rotation – total no. of directors be
Appointment of liable to retire by
Director rotation and eligible of
being re-appointed in
AGM
18 190 Contract of Not Required Compulsorily Required
Employment with (Optional)
Managing
Director / Whole
Time Director

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KEY POINTS OF DIFFERENCE BETWEEN A PRIVATE LIMITED AND

A PUBLIC LIMITED COMPANY ARE:

• A public limited company is a company listed on a recognized stock exchange and the
stocks are traded publicly. On the other hand, a private limited company is neither listed
on the stock exchange nor are they traded. It is privately held by its members only.

• The minimum number of members required to start a public company is seven. As against
this, the private limited can be started with a minimum of two members.

• In case of a public company, it is compulsory to call a statutory general meeting of

members. There is no such compulsion in case of a private company.

• The issue of prospectus or statement is mandatory in case of public company. However,

this is not the case of a private company.

• The public company will require a certificate of commencement post incorporation to

begin its operation. In contrast to this, a private company can start its business right after
its incorporation.

• The transferability of shares is restricted completely in private limited company. While the
shareholders of a public company can transfer their shares freely.

• Since there is a limited number of people and fewer restrictions, the scope of a private
limited company is limited. In contrary, the scope of a public company is vast. This is
because the owners of the company can raise capital from the general public and have to
abide by many legal restrictions.

• There is a greater regulatory burden on a public limited company. This is because a great
amount of information has to be made available to the public who are shareholders or
prospective shareholders. A lot of money has to be invested in order to prepare reports and
disclosures that match with the regulations provided by SEBI.

• A signed written resolution is received by holding general meetings of a private limited

company.

• While it mandatory for public companies to appoint a company secretary, private

companies may choose to do so only at their will.

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Depending upon one's need a type of company is chosen to be registered. However, the
principal reason for choosing a public company is to have the ability to offer shares to the
public. One has to pay a price for this by complying with a greater number of restrictions and
considerable loss of privacy.6

In situations where a public company no longer wishes to operate within the business model,
there is an option for it to return to the private limited company. This can be done by buying
back all outstanding shares form the current shareholders. The company is delisted from the
stock exchange where it has registered once this purchase is done. It will then return to operate
as a private limited company. Recent finance Bill has further added a new clause relating to
the value of assets held by private companies. According to this, prior to three years of
converting a private limited company, the value of assets as detailed in the books of accounts
should not exceed 5 crore rupees.

In situations where a private limited company thinks of converting into a public company, it
will make the compliances easier and a company will exercise greater control. This means a
company would no longer hold a meeting of shareholders and pass a special resolution
regarding part related transactions. Recent trends revealed by Ministry of Corporate Affairs
show a sharp increase in the number of companies that have rushed to become private entities.
This has been the scenario ever since the enactment of the Companies Act, 2013.

6
https://legaldocs.co.in/blog/private-limited-company-vs-public-limited-company

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CONCLUSION

From the above discussion, it is evident that many provisions as applicable to Public Limited
Companies are now made applicable to Private Limited Companies as well under the
Companies Act, 2013. For MSMEs, earlier the Private Companies were preferable mode of
entity for running business operations. However, with the new Companies Act, 2013, some
major advantages enjoyed by Private Companies have been withdrawn. With the introduction
of Limited Liability Partnership, a new form of entity is introduced through which the benefits
of legal entity can be reaped without being tied up with the much legal formalities as
enumerated in the case of Private / Public Limited Companies.

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BIBLIOGRAPHY
Books referred:
• Companies act, 2013
• Companies act, 2013, Taxmann publications Private limited
• N.R. Narayan Murthy Committee (SEBI) 2003

Websites referred:
• https://yourfinancebook.com/difference-between-private-and-public-
limited-company/
• https://taxguru.in/company-law/comparison-private-public-limited-
company-companies-act-2013.html
• https://legaldocs.co.in/blog/private-limited-company-vs-public-
limited-company
• http://www.mca.gov.in/SearchableActs/Section2.htm

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