Q.Explain the meaning of a private company and a public company, and distinguish between them, referring to the relevant provisions of the Companies Act, 2013.

Private and public companies are both registered under the Companies Act, 2013, but the law attaches different membership, capital-raising and share-transfer rules to each.

The Companies Act, 2013 defines and distinguishes a private company from a public company mainly in Sections 2(68) and 2(71).

Meaning of a private company: Under Section 2(68), a private company is one whose articles of association (i) restrict a member's right to transfer shares, (ii) except for a One Person Company, limit membership to 200 (excluding present and past employee-members who continue as shareholders), and (iii) prohibit any invitation to the public to subscribe for its securities. It must have at least 2 members and 2 directors, and its name ends with 'Private Limited'.

Meaning of a public company: Under Section 2(71), a public company is, in effect, any company that is not a private company. It must have a minimum of 7 members, with no upper limit, and at least 3 directors. It may invite the public to subscribe for shares or debentures through a prospectus, and its shares are freely transferable. Its name ends with 'Limited'. A private company that is a subsidiary of a public company is itself treated as a public company under the Act, even if its own articles otherwise read like those of a private company — this prevents a public company from using a nominally 'private' subsidiary to escape public-company obligations.

Points of distinction:

Understanding this distinction is essential for AP Board Intermediate class 11 commerce questions and answers, since several later chapters on company formation and finance build directly on which type of company is being discussed.

Essay answers often skip the statutory section numbers and the 'subsidiary of a public company is deemed public' rule — both are commonly tested details that a bare comparison table alone will miss.