Difference Between Private Company and Public Company in India

Key Takeaways

• A private company is defined under Section 2(68) and a public company under Section 2(71) of the Companies Act, 2013.
• A private company caps membership at 200 members and restricts share transfers. Meanwhile, a public company has no membership limit and allows free share trading.
• A private company requires a minimum of 2 members and 2 directors. A public company requires a minimum of 7 members and 3 directors.
• Public companies cap total managerial remuneration at 11% of net profits under Section 197. No such restriction applies to private companies.
• Secretarial audit applies to private companies only if outstanding borrowings equal or exceed Rs. 100 crore under Rule 9.
• Public companies can accept deposits from the public under Section 76, subject to a net worth of Rs. 100 crore or turnover of Rs. 500 crore.

What is a Private Limited Company? Which Features Make it Different?

A private limited company is a privately held business entity incorporated under the Companies Act, 2013. Under Section 2(68) of the Companies Act, 2013, a private company:

• Restricts the transfer of shares
• Limits its members to 200
• Requires a minimum of 2 members and 2 directors.

Key Features of a Private Limited Company

Here are the key advantages of Pvt Ltd Company Registration:

• Limited Liability: Shareholders’ liability remains limited to the unpaid amount on their shares, protecting their personal assets from business liabilities.
• Separate Legal Entity: The company can own assets, enter into contracts, and sue or be sued in its own name.
• Closely Held Ownership: Share transfer restrictions help founders retain ownership and control.
• Access to Private Funding: The company can raise capital from angel investors, venture capital firms, private equity investors, and other private sources.
• Perpetual Succession: The company continues to exist regardless of changes in its shareholders or directors.
• Business Credibility: The corporate structure enhances credibility with investors, lenders, suppliers, and customers.
• Scalable Structure: The company can issue new shares to existing or new investors, making it well-suited for startups and high-growth businesses.

What is a Public Company? What are its Key Characteristics?

A Public Company is a company incorporated under the Companies Act, 2013 that can invite the public to subscribe to its securities. Through Public Company Registration, businesses can raise capital from a broad investor base and, subject to applicable laws, list their securities on recognized stock exchanges.

Under Section 2(71) of the Companies Act, 2013, a public company:

• Requires at least 7 members and 3 directors.
• Has no maximum limit on the number of members.
• Allows the free transfer of shares, subject to applicable laws and regulations.
• Must use “Limited” as the suffix in its name.

Key Features of a Public Company

A public company structure is designed for businesses that require wider ownership, larger funding opportunities, and greater transparency. Its key features include:

• Raises Funds from Public Investors: The company can issue securities to the public to raise capital for expansion.
• Enables Stock Exchange Listing: The company can list its shares on recognized exchanges such as the NSE and BSE after meeting applicable requirements.
• Supports Large Investor Base: The company can have unlimited members, allowing broader ownership participation.
• Allows Easier Share Transfers: Shareholders can transfer their shares with fewer ownership restrictions compared to private companies.
• Builds Greater Market Trust: The company follows higher disclosure and compliance requirements, improving transparency for investors and stakeholders.
• Facilitates Large-Scale Growth: The structure supports businesses seeking institutional investment, public fundraising, and nationwide expansion.

Key Differences Between a Private Company and a Public Company (Tabular Form)

The table below covers all key parameters that distinguish a private company to a public company under the Companies Act, 2013:

Parameter	Private Company	Public Company
Governing Section	Section 2(68)	Section 2(71)
Definition	Restricts share transfers, limits members to 200, and cannot invite the public to subscribe to securities	Can issue securities to the public and allows free share transfer
Name Suffix	Pvt. Ltd.	Ltd.
Minimum Members	2	7
Maximum Members	200	No limit
Minimum Directors	2	3
Resident Director	At least 1 resident director	At least 1 resident director
Share Transfer	Restricted through Articles of Association	Freely transferable
Public Issue / Listing	Cannot issue IPOs or list shares	Can issue securities and list on stock exchanges
Minimum Capital	No minimum paid-up capital requirement	No minimum paid-up capital requirement
Board Meetings	Minimum 4 meetings annually	Minimum 4 meetings annually
AGM Quorum	2 members	5, 15, or 30 members depending on membership size
Independent Directors	Not mandatory	Mandatory for listed public companies and certain unlisted public companies (above prescribed thresholds)
Director Retirement	Generally not mandatory unless provided in AoA	Two-thirds of directors retire by rotation
Managerial Remuneration	Section 197 generally does not apply	Governed by Section 197 limits
Compliance Burden	Lower	Higher due to SEBI and additional corporate governance requirements
Funding Options	Angel investors, VCs, private equity, and loans	IPOs, FPOs, rights issues, public deposits, and stock markets
Ideal For	Startups and SMEs	Large businesses seeking public investment
Examples	Zoho Companies, Parle Products	Reliance Industries, Infosys

Note: The minimum paid-up capital requirement of Rs. 1 lakh (private) and Rs. 5 lakh (public) was removed by the Companies (Amendment) Act, 2015. Now, there is no mandatory minimum capital to incorporate either type of company in India.

Similarities Between Private and Public Companies

Despite their differences, private and public companies share several core features under the Companies Act, 2013:

• Each company has its own legal identity and can own property, enter into contracts, and sue or be sued in its own name.
• Shareholders remain liable only to the extent of the unpaid amount on their shares.
• The company continues to exist even if its shareholders or directors change.
• Both public and private companies incorporate through the SPICe+ application on the MCA portal.
• Companies with share capital must file Form INC-20A under Section 10A before commencing business or exercising borrowing powers.
• Each company must file annual financial statements and annual returns with the Registrar of Companies (RoC).

Private Company vs Public Company: Which Structure is Right for You?

The right choice between a Private and Public Limited Company depends on your ownership preferences, funding plans, and long-term business goals. 

Choose a Private Limited Company if:

• Control matters; founders want to retain full decision-making authority.
• Your business is at an early or growth stage.
• Lower compliance costs and operational privacy are priorities.
• Funding needs are moderate and met by angel investors, venture capital, or private equity.
• You plan to convert to a public company later, when ready for an IPO.

Choose a Public Limited Company if:

• You need large-scale capital through an IPO, FPO, or stock market listing.
• Listing on the NSE or BSE forms part of your expansion strategy.
• Higher compliance and disclosure requirements under the Companies Act, 2013, and SEBI regulations fit your governance framework.
• Wider shareholder participation and share liquidity will support your business objectives.
• Rapid expansion, acquisitions, or institutional investment require access to public capital markets.

Note: You can convert a private limited company into a public limited company at any time. It must increase the number of members to 7, appoint a minimum of 3 directors, and amend its AoA. Most companies do this just before an IPO. 

Choosing the right company structure can influence your fundraising, compliance, and long-term growth. If you’re still comparing the differences between a private limited company and a public company, RegisterKaro can help. Our experts provide personalized guidance and manage the complete incorporation process from start to finish. Contact us today to register your company with confidence!

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