Distinguish between the formation process of a Private Company and a Public Company.

Question

Accepted Answer

Both a private company and a public company go through Promotion and Incorporation in essentially the same way, and both, if they have a share capital, must satisfy the Commencement of Business requirement under Section 10A. The real point of difference lies in the Capital Subscription stage:

| Basis | Private Company | Public Company (inviting the public) |
|---|---|---|
| Capital Subscription stage | Never undertaken — a private company cannot invite the general public to subscribe for its shares | Undertaken if it wishes to raise funds from the public — it must issue a prospectus |
| Source of initial capital | Raised privately, from its own members, promoters and their personal contacts | Raised from the general investing public, through the prospectus |
| Minimum subscription requirement | Does not apply, since there is no public issue | Applies under Section 39 — allotment cannot proceed until the minimum subscription stated in the prospectus is reached | …

Q.Distinguish between the formation process of a Private Company and a Public Company.

Concept understanding — Stages in Formation of a Company

Basis	Private Company	Public Company (inviting the public)
Capital Subscription stage	Never undertaken — a private company cannot invite the general public to subscribe for its shares	Undertaken if it wishes to raise funds from the public — it must issue a prospectus
Source of initial capital	Raised privately, from its own members, promoters and their personal contacts	Raised from the general investing public, through the prospectus
Minimum subscription requirement	Does not apply, since there is no public issue	Applies under Section 39 — allotment cannot proceed until the minimum subscription stated in the prospectus is reached

Q.Distinguish between the formation process of a Private Company and a Public Company.

🎓Unlock everything free for 14 days

Unlock everything free for 14 days