CHOOSE PRIVATE OR PUBLIC COMPANY?

BACKGROUND
Under Indian Companies Act 2013 there are two distinct types legal entities {companies}
which are extensively used for carrying out business in India. The salient features of public
and private companies with their advantages and disadvantages are given below:-

Serial Public Private Advantages- Disadvantages

No Company Company Public/ Public/
Private Private
01 Separate legal Same For Public & For Public &
existence different Private- Private. No
from shareholders it gives disadvantage
perpetual
existence of
entity not
linked to
shareholders
02 Limited liability of Same For both: The For both. No
shareholders personal assets disadvantage
of shareholders
are not to be
taken for
liabilities of the
company
03 Should have name Same For both: As it For both.
at the time of establishes an Change of name
incorporation identity, is a legally
existence and cumbersome
the brand process
which help in
business
04 Should have a For both: For both.
registered office Same Since through Shifting of
within 30 days of this office, Registered office
incorporation communication is legally
and cumbersome
jurisdictional process
position are
established
05 Memorandum of Same For both: The For both- These
Association as legal documents could
constitution of the parameters for become
company and existence of restrictive for
Articles of the company doing any new
 association for and its day to business or for
functioning of the working are having any
company are clearly laid flexibility in
required for down. working.
incorporation.
06 Minimum seven Minimum For Public For Both.
members, two and company, it restricting the
{shareholders} no maximum helps in raising numbers can
maximum. 200 funds from affect flexibility
members. public at large of starting &
doing business
For Private
company,
limiting the
number helps
in keeping the
close & private
character of
the entity

07 Minimum three Minimum is For both: Helps For Both.

directors who two directors the Board of Restricts the
should be and rest are Directors to be doing of
individuals and at same of standard business by
least should stay in size within the limiting the
in India for not less specified Board size.
than 182 days in a numbers
financial year.
Maximum is 15
directors
08 Annual General AGM must be For both: The For both. Taking
meeting {AGM} held similarly shareholders’ shareholders’
must be held each but quorum is approval is approval,
year and quorum two members obtained annually, with
of members to be to be present annually on minimum
present – five/ personally matters like number of
fifteen/thirty approval of members
members final audited present
personally present accounts, {quorum} may
depending upon appointment be problematic
the total number of auditors and for carrying out
of members appointment business on
of directors, many occasions.
etc., together
with other
critical matters
like
 borrowings,
investments
etc.,
09 Managerial No such For public For public
remuneration of restriction company, company this
directors, helps in restriction may
Managing keeping the hamper
Director, {MD} cost of attracting good
Whole Time remuneration talent. Does not
Director {WTD} within limits. apply to private
etc., is restricted company.
for public For private
companies linked company they
to percentage of are free to pay
profits. as the
financials will
permit.
10 Shares can be There must For Public For public
listed and publicly be restriction company, company there
traded. in listing or free can be dilution
Liquidity of shares transferability transferability of control and
& easily of shares. helps in raising change of
transferable funds from majority
public. ownership.
For Private For private
company, the company fund
private or raising could be
closely held a problem.
nature is kept.

11 Under rigorous There are For Public For Public

compliance many company, this company, cost of
regime. exemptions gives compliance goes
Reporting confidence to up.
requirements are the authorities
elaborate. and public For Private
which in turn company, fund
helps in fund raising from
raising and outside can be
getting other problematic.
permissions for
doing business.

For private
company, the
close working
of the
 company with
minimum
outside
interference is
possible.

12 Financial affairs Financial For public For public

are public affairs are not company it company, there
generally gives is more scrutiny
needed to be confidence to and
made public the authorities accountability.
and the public For private
for funding & company, it
carrying out generally doesn’t
business. support in
For private raising funds
company, the
close nature of
the business is
maintained.

13 Management Control may For both: Helps For public

Control rests with rest with in maintaining company,
Board of directors Board and continuity of control may be
and majority shareholders management changed due to
shareholders who who may be public
may be outsiders close group transactions of
or shares.
individual/s For Private
company,
undesirable
groupism may be
harmful to the
business.

14 Can be wound up Same For both: Helps For both: Time

by due process of in bringing an consuming and
law end to the cumbersome.
legal entity New Insolvency
with equitable and Bankruptcy
meeting of Code 2016 can
liabilities and bring out quick
distribution of end to the
assets insolvent
company.
18th September 2018