Comparison between private and public companies

CA Sachin D Jain , Last updated: 22 July 2016
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HEADING: Comparision between a Private Limited and Public Limited Company as per Companies Act, 2013.

BRIEF: Major differences between a Private Company and a Public Company as per various provisions contained in the Companies Act, 2013, relevant rules.

INTRODUCTION: The Companies Act of 2013 has done away with the relaxation to private companies in several provisions. The concept of “not applicable to private company” is no more in existence in the Act of 2013. Such a move in the Companies Act of 2013 has taken away certain privileges enjoyed by private companies. The privileges are of two types. One is for the directors and to their interest and the second one is for the private company itself. The Directors were hitherto enjoying certain pleasure from the application of certain provisions are now withdrawn. Further, the Companies Act, 2013 have mandated certain new requirement like that of internal audit to both public and private companies.

MAIN BODY: Statement showing Some key points of differences in applicability of various provisions of the Companies Act, 2013 between a Public Limited Company and a Private Limited Company:

SR NO	SECT-ION	BRIEF DESCRIPTION	PRIVATE COMPANY	PUBLIC COMPANY
1	2	Meaning	Minimum Capital : Rs. 100000 Right to transfer the shares: Restricted	Minimum Capital : Rs. 500000 Subsidiary of a Public Co. is deemed to be a public Co.
2	2	Small Company	If Paid-up Share Capital does not exceed Rs. 50 Lakhs and Turnover as per Last Audited accounts does not exceed Rs. 2 Crore	Not Applicable
2	3	Minimum Members Required	2 (Two), Maximum 200 (Two Hundred)	7 (Seven)
3	4	Name of the Company	“Private Limited” as Last Word	“Public Limited” as Last Word
4	5	Provision of entrenchment in the Articles	To be agreed and approved by all the members	To be agreed and approved through a Special Resolution
5	23	Issue of Securities	By way of Right Issue or Bonus Issue Through Private Placement	To Public through Prospectus (“Public Offer”) By way of Right Issue or Bonus Issue Through Private Placement
6	29	Public Offer to be in Dematerialised Form	Not Applicable	In case of public offer of securities, the securities have to be in Dematerialised Form
7	40	Securities in Public Offer to be listed in Stock exchanges	Not Applicable	Securities offered in Public Offer, to be listed in Recognised Stock Exchanges
8	67	Purchase / Loan for Purchase of Own Shares	Not allowed to Purchase its own Shares	Not allowed to Purchase its own Shares; No Financial assistance to be given to purchase its own shares
9	73	Acceptance of Deposits	Not allowed to accept deposit	Allowed if Paid up share capital is Rs. 100 Crore or more or Turnover of Rs. 500 Crore or more
10	103	Quorum of Meetings	Two members personally present	Five in case of Members upto 1000; Fifteen in case of Members more than 1000, upto 5000; Thirty in case of Members exceed 5000.
11	138	Internal Audit	Applicable in case of : Turnover >= Rs. 200 Crore in preceding financial year, Loans from bank or NBFCs >= Rs. 100 Crore in preceding financial year	Applicable in case of : Paid Up Capital >= Rs. 50 Crore in the preceding financial year, OR Turnover >= Rs. 200 Crore in preceding financial year, Loans from bank or NBFCs >= Rs. 100 Crore in preceding financial year, OR Public Deposit >= Rs. 25 Crore in preceding financial year
12	134 (3)(p)	Annual Evaluation in the Board’s Report	Not Applicable	If Paid up share capital is Rs. 25 Crore or more, the details of annual evaluation in the Board’s Report
13	139 (2)	Rotation of Auditor	Applicable in case of Paid up Capital is Rs. 20 Crore or more	Applicable in case of Paid up Capital is Rs. 10 Crore or more
14	149	No. of Directors and Independent Directors	2 (Two); Not required to appoint independent director	3 (Three); and In case of Listed Companies, at least One-Third as independent directors
15	152	Retirement by rotation - Appointment of Director	Not Applicable	At least two-third of total no. of directors be liable to retire by rotation and eligible of being re-appointed in AGM
16	190	Contract of Employment with Managing Director / Whole Time Director	Not Required (Optional)	Compulsorily Required
17	197	Restriction on Managerial Remuneration	No restriction on amount of managerial remuneration	Managerial Remuneration is: Restricted to 11% of Net profit (subject to conditions); OR at least Rs. 30 lakh p.a. depending upon paid up capital

Conclusion: From the above discussion, it is evident that many provisions as applicable to Public Limited Companies are now made applicable to Private Limited Companies as well under the Companies Act, 2013. For MSMEs, earlier the Private Companies were preferable mode of entity for running business operations. However, with the new Companies Act, 2013, some major advantages enjoyed by Private Companies have been withdrawn. With the introduction of Limited Liability Partnership, a new form of entity is introduced through which the benefits of legal entity can be reaped without being tied up with the much legal formalities as enumerated in the case of Private / Public Limited Companies.

(Author is a Practicing Chartered Accountant from Surat, Gujarat and can be reached at Mob: +91-9687559363 or on email sachindjain@icai.org)