Private Company and Public Company

The Companies Act, 2013 classifies companies on several bases; the most examined distinction in AP Intermediate commerce is between a private company and a public company, because the rules on membership, capital-raising and share transfer differ sharply between the two.

Private company — Section 2(68). A private company is one whose articles of association: (i) restrict the right of members to transfer their shares; (ii) except in the case of a One Person Company, limit the number of members to 200 (this excludes present and past employee-members who continue to hold shares); and (iii) prohibit any invitation to the public to subscribe for the securities of the company. A private company must have a minimum of two members and two directors, and its name must end with the words 'Private Limited'.

Public company — Section 2(71). A public company is defined, in effect, as a company that is not a private company. It must have a minimum of seven members (there is no upper limit) and at least three directors. A public company may invite the general public to subscribe for its shares or debentures through a prospectus, and its shares are freely transferable. Its name ends with the word 'Limited'. A private company that is a subsidiary of a public company is itself treated as a public company for the purposes of the Act.

Minimum paid-up capital. Before the Companies (Amendment) Act, 2015, the Act had prescribed a minimum paid-up share capital of Rs 1 lakh for a private company and Rs 5 lakh for a public company. The 2015 amendment removed this minimum paid-up capital requirement altogether, so a company today can be incorporated with whatever capital its promoters consider adequate for the business.

The table below summarises the main points of difference that AP Board Intermediate class 11 commerce questions and answers on this topic typically test.