Public & Private Company

The main differences between Public or Private companies relate to the provisions of the Companies Act that are not applicable to private companies. These include:

• Provisions as to the type of share capital, further issue of share capital, voting rights, issue of shares with disproportionate rights, etc.
• Provisions restricting the company from giving financial assistance to subscribe to its own shares.
• Provisions restricting the amount of managerial remuneration paid and certain other provisions relating to managerial personnel.
• Provisions restricting the powers of the Board of Directors.
• Provisions restricting loans to directors.
• Private companies are deemed to be converted into public companies in the following circumstances:
  
  • When not less than 25% of the paid up capital of the company is held by one or more corporate bodies.
  • When the company holds 25% of the paid up share capital of a public company.
  • When the average annual turnover of the company exceeds Rs.100 million.
  • When the company accepts deposits from the public.
• On becoming a deemed public company, many provisions of the Companies Act, 1956 in respect of which the company had exemption as a private company would become applicable.
  
  

Private companies are formed between 2 to 50 members and it prohibits invitation to public for capital issues. Many provisions of the Companies Act are not applicable. Also, there is a restriction on transfer of shares and the taxation rates are higher. Shares of the Public Limited Companies on the other hand, are normally freely transferable. Minimum seven members are required to form the company. The taxation rates are normally lower and there is a wider coverage of Companies Act.