Forms of Business Organisations

Types of Companies

Not all companies are the big multinational and large companies to see around you. The Companies¬†Act, 2013 has described various types of companies that can be incorporated in India. Here we will be focussing on two major types of companies, the Private Company and Public Company. Let’s get started.

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Types of Companies

Private Company

This is a type of company that finds mention in the Companies Act, 2013. The purpose of private companies is when the business is not very large, but the owners/management still want to opt for a company over a partnership or proprietorship. Let us look at some of the features/characteristics of a private company.

  • Minimum numbers of members required to incorporate a private company are 2. There is also a maximum limit of 200 members. However, joint members of shares are counted as one member.
  • The minimum paid-up capital for a private company has been kept at one lacs. There is no maximum limit in this case.
  • Transferability of shares by its members is restricted. Such transfers are not absolutely prohibited, but there are certain restrictions put by the Companies Act. This is to avoid takeovers by larger companies and multinationals and ensure the sanctity of private companies
  • Private companies under no circumstances can accept deposits from the public. It cannot invite members of the public to subscribe to its shares either.
  • The number minimum of directors to be appointed are 2. No independent directors are required.

Privileges of a Public Company

Now a private company under the Companies Act enjoys certain privileges over a public company. Since a private company does not take deposits from the public, certain rules have been relaxed in their favour. Let us take a look at all the privileges that private companies enjoy.

  • The minimum number of members are restricted to 2. So it does not require many promoters to start a private company.
  • Since the members of the public are not invited to subscribe shares there is no need to issue a prospectus on any such similar document.
  • There is no need to wait for a minimum subscription amount to be received. The members can allot shares within themselves and immediately incorporate the company.
  • While incorporation with the registrar of companies is compulsory, there is no commencement certificate in the case of private companies. The business can start functioning immediately after receiving the certificate of incorporation.
  • In case of a private company, there is no need to maintain a register of shareholders.
  • It can allot any type of shares to its members. even shares with differential voting rights which are prohibited for public companies.
  • Its financial accounts are not accessible by any member of the public. It can maintain some secrecy in the matter.
  • The directors need not retire by rotation and there is no limit on their remuneration as well.

Image result for private company and public company

(Source: keydifferences)

Public Company

In simple terms, a public company is a company whose shares can be subscribed by members of the public. As per the Companies Act, 2013 a public company is

  • A company that is not a private company
  • Has a minimum of seven members, no maximum limit is mentioned
  • Has a minimum paid-up capital of five lacs, again there is no maximum limit
  • A private company that is a subsidiary of a public company, will be considered a public company

There are certain documents required to be filled by a public company with the Registrar of companies, so let us take a look at these documents

  • Memorandum of Association: This is the constitution of a company. States the objective of the company, the total capital, the name of the company, the registered address etc.
  • Articles of Association: This document contains rules and regulations of the internal management of the company.
  • Prospectus: Because the company wishes to invite funds from the public it must register and issue a prospectus or a document in liu of a prospectus. Any material misstatement in the prospectus by the directors, promoter, or the experts is a criminal liability.

Private Company vs Public Company

Point Private Company Public Company
Paid-up Capital Minimum paid-up capital of Rs 1.00.000/- Minimum paid-up capital of Rs 500.000/-
No. of Members Minimum 2 members and maximum 200 Minimum 7 members, no max limit
Name of Company Name must end in “private limited” Name must end in “public limited”
No. of Directors Minimum two directors, and no need for independent directors Minimum 3 directors, and if listed company one-third must be independent
Managerial Remuneration There are no restrictions Restricted to 11% of the Net profit of the company
Quorum of Meetings Minimum two members, present in person Quorum will depend on the total number of members of the company
Public offer Private companies cannot have public offers for shares Public offers must be in the demat form only
Accepting Deposits Not allowed according to the act If paid capital exceeds 100 crores, or turnover exceeds 500 crores, the company can accept public deposits

Solved Question for You

Q: What is a certificate of incorporation?

Ans: When a company, private or public is successfully registered with the Registrar of Companies, he will issue a certificate of incorporation. This is the conclusive evidence that a company has been duly registered and all necessary procedures are complied with.

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