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Private vs. Public Company: What's the Difference?

A company is an association of people assembled to carry out a business to achieve a common objective. It is a corporate legal body having separate status and personality to accomplish a common goal.

An incorporated company exists either under a Special Act of Parliament or under the country's company law. Broadly, companies have been categorised as private or public, like in India, LIC, SBI, IOCL, BPCL, ONGC, etc., are public companies. In contrast, Reliance Industries Ltd., Tata Steel Ltd., etc., are Private companies.

The majority of shareholdings of public companies are held with the government or the general public. In contrast, in private companies, most shareholdings are borne by the promoters or the members of the companies, who are usually ordinary individuals, not the government.

Private vs. Public Company: What's the Difference

Private Companies

As per the Companies Act, a private company is a company that has a prescribed minimum share capital and adheres to the following criteria:

  • A private company is restricted from transferring its shares.
  • The maximum number of members or promoters is limited to two hundred.
  • Prohibited from issuing any invitation to the public to subscribe to any securities of the company.
  • The words 'Private Limited' must be added at the end of the private limited company.
Private vs. Public Company: What's the Difference

Different private companies, like Sole proprietorships, Partnerships and Corporations, have been differentiated based on the number of members or owners. Private companies are not bound to release their financial reports and balance sheets to the public; it only shares their financial statements internally with its member.

Examples of famous private companies in India are Reliance Industries Ltd., Wipro Ltd., ITC Ltd., Infosys Technologies Ltd., ICICI Bank Ltd., etc.

Public Companies

As per the Companies Act, a public company is a company that is:

  • Not a private company;
  • And, has a minimum paid-up share capital, as prescribed by the law.

As per the Act, a public company is formed for any legal purpose by a minimum number of seven or more people by subscribing their names to the memorandum.

Private vs. Public Company: What's the Difference

In a public company, the company's securities can be quoted on Stock Exchange, and the number of maximum members is unlimited. There are no restrictions on the transferability of shares. The public company must disseminate its financial information, like issuing financial reports and balance sheets, to the public because it raises capital from the people, and the general public is its stakeholders.

Some examples of public companies are IOCL, BPCL, HPCL, SBI, BSNL, AAI, SAIL, BEL, BHEL, etc.

The Difference between Public and Private Companies

The key differences between a Public and Private Company have been discussed below based on different attributes:

Private vs. Public Company: What's the Difference
Attributes Private Company Public Company
Ownership A few members privately own a private company. A public company is publicly owned.
Suffix A private company is needed to use the word Private Limited after the company's name, like QPR Private Limited. A public limited Company is required to use the suffix limited, like QPR Limited.
Minimum Members The minimum number of members required for a private company is 2. The minimum number of members required for a public company is 7.
Maximum Members A private company can have a maximum number of 200 members. A public company has no maximum limit on the number of members.
Subscription of Shares by public The subscription of shares by the public in a private company is prohibited. The subscription of shares from the public is allowed to a public company.
Issue of Prospectus A private company doesn't need to issue a prospectus. A public company must issue a prospectus.
Transferability of shares The Act prohibits the transferability of shares of a private company. The shares of a public company are freely transferable.
Disclosure of financial statements In a private company, there is no requirement to disclose financial reports to the general public. Public companies must disclose their financial statements to the general public periodically.
Fund Raising A private company cannot raise funds by issuing IPOs; it can only raise funds through private investors. The public company can raise funds by issuing IPOs from the general public.

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