PRIVATE COMPANY

Definition : A private company is a company or firm held under private ownership. They are
companies that are privately owned. These firms are privately held companies – their
ownership is private and they are run by a private management.

A private company in most cases is owned by the company’s founders, management or a group
of private investors.

A private company means a company which by its articles restricts the right to transfer its
shares. It limits the number of members to 50.

Prohibits any invitation to the public to subscribe for the shares.

Characteristics A private company has the following characteristics :

1. It has restrictions on the transfer of shares

2. It can be formed by at least 2 persons
3. The total members must not exceed 50
4. It cannot invite the public to purchase its shares
5. It cannot issue prospectus ( a disclosure document specifying the company’s
investments and capital) to the public.
6. It raises capital by offering shares to relatives, friends, directors, promoters or existing
members
7. It can be converted into a single member company with the approval of the
Commission.
8. A private company must add the words ‘Private Limited’ at the end of its name

Transfer of Shares The following is the procedure for transfer of shares :

1. A member of a private company shall inform the board of directors about his
intention to sell his shares through a notice.
2. The board shall within 10 days offer those shares for sale to the members
3. The offer shall specify the number of shares, the price per share
4. If shares offered are not taken, the board of directors may offer such shares to other
members of the company
5. If the members refuse to accept the offer, the member may sell his shares to any
other person
 Single Member Company A single member company means a company which has only
one member. The following are rules and characteristics of a single member company :

1. A single person may form a single member company

2. A single member company shall not invite the public to subscribe for its shares
3. A single member company shall have at least 1 director
4. The single member shall be the director and usually is
5. The company may appoint a secretary
6. The word SMC – Private Limited shall be part of the name of every single member
company
7. A single member company can be converted into a private company by passing a special
resolution
8. A private company can be converted into a single member company with the approval
of the Commission

Privileges of Private Company A private company enjoys the following privileges :

1. A private company is not required to issue a prospectus before allotment of shares

2. It can start its business without fulfilling the requirement of a minimum subscription.
3. The directors of a private company are not required to purchase qualification shares.
4. There are relaxed rules regarding audit of financial statements and appointment of
auditors
5. A private company is not required to prepare a director’s report for each financial
year if its paid up capital ( share capital ) ( the amount of money a company has
received from shareholders in exchange for shares of stock i.e ownership in the
business) is less than 3 million rupees.

Conversion from Private Company into Single Member Company

The following is the procedure for conversion :

1. The company shall pass a special resolution to amend the memorandum and articles
to include all the provisions relating to a single member company.
2. The company has to file an application for conversion with the Commission
3. If the Commission is satisfied it shall allow the conversion by an order in writing and
inform the registrar
 4. The company shall file a copy of the altered memorandum and articles with the
registrar within 15 days from the date of the order
5. The registrar upon registration of the memorandum and articles shall issue a
certificate
6. The conversion of the status of accompany shall not affect any debts, liabilities and
obligations.

Conversion from Single Member Company into Private Company

The following procedure is taken for conversion:

1. The company shall pass a special resolution to amend the articles of association to
exclude the provisions required for a single member company
2. On the date of the alteration of the articles it shall become a Private Company
3. The company shall file a copy of the altered memorandum and articles along with the
special resolution with the registrar
4. The registrar once he registers the memorandum and articles shall issue a certificate
5. The conversion of the status of a company shall not affect any debts, liabilities and
obligations etc.

PUBLIC COMPANY

Definition ‘A Public Company is a large company – a corporation that is publicly owned

i.e whose shareholders have a claim to be part of the company’s assets and profits.
Ownership of a public company is distributed among the general public i.e the company
offers shares and investments to the general public.

A public company is a company whose ownership is organized through stocks of shares

that are sold and exchanged publicly in the stock market ( a financial market where you
buy stocks, bonds and other securities – financial assets). A stock is a type of
investment in a company. Companies usually issue stock shares to raise money – capital
in order to finance operational needs and to promote growth, and investors buy those
stock shares for the opportunity to generate a return i.e profit on their investment.

Conversion of Public Company into Private Company

The following is the procedure for conversion:
1. The company shall pass a special resolution to amend the memorandum and articles
to include all the provisions relating to a private company
2. The company has to file an application for conversion with the Commission
3. If Commission is satisfied it shall allow the conversion by an order in writing
4. A copy of the order confirming the conversion shall be delivered to the company and
registrar within 7 days
5. The company shall file a copy of the altered memorandum and articles with the
registrar
6. The registrar upon registration of the memorandum and articles shall issue a
certificate
7. The conversion of the status of a company shall not affect any debts, liabilities and
obligations etc.

Conversion of Private Company into Public Company

A private company may become a public company in the following ways:

1. Conversion by Choice

The following is the procedure for conversion by choice:

a. The company shall pass a special resolution to amend the articles to exclude
the provisions which are required for a private company
b. On the date of the alteration of articles it shall become a public company
c. The company has to file a copy of the altered memorandum and articles
along with the special resolution with the registrar
d. The registrar upon registration of the memorandum and articles shall issue a
certificate
e. The conversion of the status of a company shall not affect any debts,
liabilities, obligations etc.

2. Conversion by Default

If a private company fails to fulfill the requirements of a private company i.e if it

membership exceeds 50, if it allows free transfer of shares and does not follow
the legal procedure of transfer of shares or invites the public to purchase or
subscribe ( receive something through payment) to its shares, the company shall
automatically become a public company.
DIFFERENCE BETWEEN PRIVATE AND PUBLIC COMPANY

PRIVATE COMPANY

1. Minimum Members At least 2 members are required to form a private

company. A single member company requires 1 member
2. Maximum Members The maximum limit of members is 50
3. Sale of Shares It cannot invite the public to purchase its shares
4. Commencement of Business It can start its business after getting a
certificate of incorporation
5. Framing of Articles It has to frame its articles
6. Transfer of Shares There is a restriction on the transfer of shares
7. Number of Directors A single member company must have 1 director while
a private company must have at least 2 directors
8. Word ‘Limited’ It must use the word ‘Private Limited’ at the end of its
name
9. Signatories to Memorandum To form a private company, 2 signatories to
the memorandum are required
10. Qualification Shares The directors are not required to purchase
qualification shares

PUBLIC COMPANY

1. At least 3 members are required to form a public company

2. There is no limit on the maximum number of members
3. It can invite the public to purchase its shares
4. It can start its business after fulfilling conditions regarding minimum
subscription and qualification shares
5. It does not have to frame its articles
6. There is no restriction on the transfer of shares
7. It must have at least 7 directors
8. It must use the word ‘Limited’ at the end of its name
9. To form a public company 3 or more signatories to the memorandum are
required
10. The directors are required to purchase qualification shares