Organisation of Commerce and Management · Ch 5 — Forms of Business Organisation – II
Private Company and Public Company
Private Company and Public Company
4. Private Company and Public Company
Under the Companies Act, 2013, a Joint Stock Company is classified — based on the number and
nature of its members and how freely its shares change hands — into two principal types: the
Private Company and the Public Company. At Std XI level, the goal is to understand the
core CONCEPTUAL differences between the two, not the detailed procedural compliance a company
secretary would handle (that level of detail belongs to the Secretarial Practice elective, not
this OCM chapter).
Private Company — a company whose articles of association restrict the right of members to
transfer shares, limits the number of its members, and prohibits any invitation to the public to
subscribe to its securities. A private company's name must end with the words "Private Limited"
(Pvt. Ltd.).
Public Company — a company that is NOT a private company; it places no restriction on the
transfer of its shares and may invite the general public to subscribe to its shares/debentures.
A public company's name ends with the word "Limited" (Ltd.).
Private Company vs. Public Company — the key distinguishing points
| Basis | Private Company | Public Company |
|---|---|---|
| Minimum members | 2 | 7 |
| Maximum members | 200 (excluding certain categories of employee/former-employee members) | No maximum limit |
| Minimum directors | 2 | 3 |
| Transferability of shares | Restricted by the company's articles | Freely transferable |
| Invitation to the public | Prohibited from inviting the public to subscribe to shares/debentures | Free to invite the public to subscribe |
| Name suffix | "Private Limited" (Pvt. Ltd.) | "Limited" (Ltd.) |
| Prospectus | Not required to issue one (cannot invite the public) | May issue a prospectus to invite public subscription |
| Commencement of business | May generally commence business immediately on incorporation | Must obtain a certificate of commencement of business (where a prospectus/public offer is involved) before starting |
*(Note on minimum paid-up capital: the Companies Act, 2013 originally prescribed a statutory
minimum paid-up capital for both private and public companies; the Companies (Amendment) Act, …
A company whose articles restrict share transferability, cap membership (commonly at 200), and prohibit inviting the public to subscribe to securities; n …
A company that is not a private company — shares are freely transferable, membership is uncapped, and it may invite the public to subscribe to secur …