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Difference between Private Company and Public Company in terms of Compliance under the Companies Act, 2013:

Many times people ask which form of Company i.e. private/public is better to do business in terms of compliance related aspects under Companies Act, 2013. From the day the Companies Act, 2013 has been enforced these talks are there. But with passage of time the Ministry of Corporate Affairs on recommendations of various stakeholders, committees has come up with notifications, circulars amending the Companies Act thereby making private Companies less burdened with respect to compliance under Companies Act. With the view of above an attempt has been made from my side to provide some information on which form of Company is better to do business.


S.No.

PARTICULARS

PRIVATE

PUBLIC

1

Meaning

Right to transfer share restricted, no minimum paid up capital

No minimum paid up capital, subsidiary of Public Company is deemed to be Public Company.

2

Formation

Minimum member 2

Maximum member 200

Less statutory cost

Minimum member 7

More statutory cost

3

Small Company

Status of small company if Paid up less than 50 lakhs and turnover less than 2 crore

Can never be Small Company

4

Name of company

Private limited

Limited

5

Offer of securities

By right issue, bonus issue, private placement, preferential allotment to members only

Right issue, bonus issue, private placement, preferential allotment to public (if listed) and members

6

Listing, dematerialization

Not applicable

If public issue of securities then listing and dematerialization of shares mandatory.

7

Acceptance of deposits

Can accept from members upto 100 % paid up capital, free reserves and securities premium. If more than this limit then follow procedure given in S.73(2)(a) to (e).

Can accept from Directors or their relatives any amount on declaration from them.

Can accept from members by following procedure given in S.73(2)(a) to (e).

Can accept from public if net worth is at least 100 cr or turnover at least 500 cr.

8

Signing of Annual Return

Director and c.s. if any otherwise c.s. in practice

If small company then only director shall sign.

Director and c.s. if any otherwise c.s. in practice

9

Quorum for meeting

2 members

5 in case of Members upto 1000;

15 in case of Members more than 1000, upto 5000;

30 in case of Members exceed 5000.

 10

Filing of resolutions to ROC

No requirement to file form MGT 14 for exercising board powers u/s 179(3) for only other matters such as passing of SR.

No such exemption has to file on board powers also along with other matters.

11

Internal audit

If turnover of 200 cr or more in preceding financial yr or outstanding loans or borrowings from banks or public financial institutions exceeding 100 cr or more at any point of time during the preceding financial year.

every unlisted public company

(i) paid up share capital of 50 cr or more or

(ii) turnover of 200 cr or more in preceding financial year; or

(iii) outstanding loans or borrowings from banks or public financial institutions exceeding 100 cr or more at any point of time during the preceding financial year; or

(iv) outstanding deposits of 25 cr or more at any point of time during the preceding financial year

12

Formal evaluation of board

Not applicable

If paid up capital is more than 25 cr then include in director report statement to this effect.

13

No. of Directors

Minimum 2

Maximum 15

No Independent Director

No women director

Minimum 3

Maximum 15

But if listed then 1/3rd Independent Directors and also need women director.

14

Rotation of Directors

Not applicable

Director to retire by rotation

15

Audit Committee

Not applicable

If listed then mandatory otherwise if paid up capital is more than 10 cr or turnover is more than 100 cr or outstanding loans, deposits exceeds 50 cr.

16

Establishment of Vigil Mechanism

Not applicable

If listed then mandatory otherwise if accepts deposits from public and if have borrowings from banks in excess of 50 cr.

17

Nomination and Remuneration committee

Not applicable

If listed then mandatory otherwise if accepts deposits from public and if have borrowings from banks in excess of 50 cr.

18

Stakeholders Relationship Committee

Not applicable

If more than 1000 shareholder, debenture holder, deposit holder or other security holder.

19

Restriction on power on Board

No restrictions on power of Board as section 180 is not applicable

There are restrictions on power of Board as Special Resolution shall be required to be passed for specific items.

20

Disclosure of Interest

Interested Director may participate in board meeting after disclosure of his interest.

No such exemption, interested director can’t participate in board meeting even after disclosure of his interest

21

Loan to Directors

Section 185 not applicable to private company. A private company can give loan to director or other person in whom director is interested if no other company has invested in its share capital or borrowings of company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or 50 cr, whichever is lower

Section 185 applicable to public company it can’t give loan to director or other person in whom director is interested

22

Related Party Transaction

Member of the company can vote on resolution to approve any contract or arrangement which may be entered into by the company, even if such member is a related party after disclosure of his interest.

Member of the company can’t vote on resolution to approve any contract or arrangement which may be entered into by the company, even if such member is a related party.

23

Secretarial Audit

Not applicable

If listed applicable otherwise if paid up capital is more than 50 cr or turnover exceeds 250 cr.

24

Managerial Remuneration

No limits on managerial remuneration

Total remuneration payable by Public Company shall not exceed 11% of net profits of the Company


CONCLUSION:

After reading above we can conclude that compliance burden is less on Private Companies as compared with Public Companies. Private Companies enjoy some exemption in law be it filing related, deposits related or constitution of committee under the Act. On the other hand Public Companies on crossing threshold limits as prescribed in the Act are more burdened in relation to filing related, constitution of committees or independent directors.

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Category Corporate Law, Other Articles by - ACS SATINDER SINGH 



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