Private Limited and Public Limited Company are two very important terms used in the corporate world. So what is the difference between both terms ?
In this article, we will discuss the difference between Private Limited and Public Limited Company in a simple and easy way, so read the article till the end.
Note – If you want to understand the basics of share market from zero level then you should start with Part 1. – Share Market and Related
| difference between private limited and public limited company
Let’s start knowing the difference between Private_Limited and Public Limited Company with the two terms Proprietorship and Partnership-
Proprietorship – Proprietorship means when there is a sole proprietor of a company. He has invested all the capital himself and he enjoys all the profits alone.
Partnership – Now if the same person sells half of his shares, then obviously half the ownership will remain with him and half will be with him to whom he has sold. This is partnership.
If both of them want to increase their business, then the best option for them is to take a loan from the bank. Suppose they took a loan from the bank and by chance their business did not run and they became unable to repay the loan of the bank. What will the bankers do in such a situation?
The bankers will first sell the assets of their company to compensate for their money and if that is not compensated then they will try to collect as much as possible by selling their personal assets like house, land, furniture etc. It is called unlimited liability . Remember this, it will come in handy later.
| What is a Private Limited Company?
A Private Limited Company can be started with minimum 2 and maximum 200 members as per the provisions of the Companies Act 2013 .
The same person who was doing business alone or in partnership till now, now if he makes the same business as a private limited then see what will be the benefit to him.
Limited Liability: After forming a private limited, the biggest advantage is that now if he takes a loan from the bank and his company sinks, then the bankers can sell his company’s assets and collect as much as he wants, but his personal assets. They can’t touch it. This is the meaning of the word Limited which is used in Private Limited.
Perpetual succession: If there is an ordinary company, that is, if it is not a private limited company, then in that case, if the owner of that company dies or leaves the business, then to a large extent it is possible that that the company too will end.
But according to the company law, even if the owner or member of a private limited company dies or leaves the company, the company continues to exist.
After becoming a private limited company, a company can issue its shares and sell it to private investors. That is, now the dependency of that company ends with the bank. Because when they sell their shares to a private investor, at least he will get freedom from paying EMI and that investor will also help in growing the company.
| What is a Public Limited Company?
Talking about a public limited company, it not only provides the facility of a private limited company but also provides many other facilities. such as –
Private limited company can sell its shares only to private investors, but talking about public limited, they can sell their shares to private investors as well as retail investors (ie, common people).
That is, in a way, it gives birth to the stock market, because it can be listed in the stock market and can come with an IPO i.e. Initial Public Offering.
[Whenever a company issues for the first time or new shares, it is called IPO. The stock of a company becomes available for sale and purchase in the market only after the issue of IPO. Read stock market for more details ]
Where the company can have a maximum of 200 members in a private limited, the company can have as many members as it wants in a public limited. Now let us look at both of them together to see what is the main difference between the two;
|Difference between Private Limited and Public Limited Company
|private Limited company
|public limited company
|Minimum members –
|at least 2
|at least 7
|Maximum members –
|more than 200
|as much as you want
|Minimum Directors –
|at least 2
|at least 3
|Minimum Capital –
|at least 1 lakh
|at least 5 lakhs
|Can sell only to private investors
|to retail investors
|annual General Meeting –
|Must have at least 2 members
|Must have at least 5 members
|Compulsory to set up private limited
|Just putting limited is enough