Company

Organization
 Meaning and Definition
Meaning: A company is a legal business structure and has entirely a different organizational
structure from the sole proprietorship or partnership. Its formation is due to firstly, the sole
proprietorship and partnership cannot meet the increased capital demand of industry and
commerce. Secondly, the company ensures the protection of limited liability to the
shareholders and investors.
Definition: According to Justice Lindley a company means association of persons who
contribute in shape of money or moneys worth to a common stock and employ it for some
specific purpose.
There are three main activities of a business

Merchandising activities: This involve activities deal with goods in a ready to sell condition.

Manufacturing Activities: This involve from purchase to raw material and put labor and
factory overhead on the raw material and produce a product.
Services Activities: This involve banking, education, insurance and training activities.
 Formation of Private and Public Company
A private company is a closely held one and requires at least two or more
persons, for its formation. On the other hand, a public company is owned
and traded publicly. It requires 7 or more persons for its set up. There are
vast differences between Pvt Ltd. and Public Ltd Company.
A Private Limited Company is a joint stock company, incorporated under
The Indian Companies Act, 2013 or any other previous act. It is an
association of persons formed voluntarily, having the minimum paid up
capital of Rs. 1,00,000. The maximum number of members is 50,
excluding the current employees and the ex-employees who were the
members during their employment or continues to be the member after
the termination of employment in the company.
A Public Limited Company or PLC is a joint stock company formed and
registered under The Indian Companies Act, 2013 or any other previous
act. It is an association of persons formed voluntarily, having a minimum
paid up capital of Rs. 5,00,000.
 Comparison Chart
BASIS FOR COMPARISON PUBLIC COMPANY PRIVATE COMPANY

A public company is a company A private company is a company

Meaning
which is owned and traded publicly which is owned and traded privately.

Minimum members 7 2
Maximum members Unlimited 200
Minimum Directors 3 2
Minimum paid up capital 5,00,000 1,00,000
Suffix Limited Private Limited
After receiving certificate of
After receiving certificate of
Start of business incorporation and certificate of
incorporation.
commencement of business.
Statutory Meeting Compulsory Optional
Issue of prospectus / Statement in
Obligatory Not required
lieu of prospectus
Public subscription Allowed Not allowed

Quorum at AGM 5 members must present in person. 2 members must present in person.

Transfer of shares Free Restricted

 Merits and Demerits of Private Company
The merits of a private limited company are as under:-
One of the advantages of private limited company is that members are well known to each other;
however control is in the hands of owners of capital.
In the management of affairs and conduct of business is greater flexibility.

Statuary meeting is not required as well as submitting of a statuary report.

The number of directors in a private limited company is at least two.

A private company after receiving certificate of incorporation start business immediately.

The demerits of these companies are as under:-

1.One of the disadvantages of private limited company is that it restricts transferability of shares by its
articles.

2.In a private limited company the number of members in any case cannot exceed 50.

3.Another disadvantage of private limited company is that it cannot issue prospectus to general public.

Merits and Demerits of Public Company

Merits:
Raising capital through Public issue of shares: The most obvious advantage of being a public limited
company is the ability to raise share capital, particularly where the company is listed on a recognized
exchange.
Widening the shareholder base and spreading risk: As well as share capital, a public limited company will
often find itself in a better position when looking at other potential sources of finance.
Growth and expansion opportunities: The value and chances of being able to raise finance is in how it can
be employed to serve the business. By having more finance potentially more readily available and on
better terms than a private company, the public limited company can be in an advantageous position to:
1. Pursue or gain new projects, new products or new markets:
2. Grow capital expenditure to support and enhance the business
3. Make acquisitions (whether in cash or by offering shares to the shareholders of the target business)
4. Acquire funds for research and development
5. Pay off existing debt (or replace existing debt with new debt on better terms)

Exit Strategy: Going public can enhance the options for the founders to exit the business at some point in the future,
if they wish to do so. Both higher transferability of shares and the increased visibility of the business and its
performance may increase the chances of bid interest from potential suitors.

Demerits

More regulatory requirements: To help protect shareholders, the legal and regulatory requirements for a public
limited company are more troublesome than for private limited companies.

Higher levels of transparency required: Limited companies, whether public or private, have more of their details in
the public domain, available via Companies House, than other business types. But the required level of transparency
is much higher for public companies.

Ownership and control issues: With a private limited company, the shareholders will typically be people known to the
directors or founders. A private company will often be selective over who to admit as a shareholder, ensuring they
support the vision and plans for the business.