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Definition Of Company. Difference Between Public And Private Company

Definition of Company

In general parlance, any commercial activity undertaken by a group of people under a registered name for the same is called a company. The word “Company” cannot be restricted to have legal or technical usage or meaning as it is a common word in colloquial conversation.

According to Lord Justice Lindley defines that “A company is an association of many person who contribute money or monies worth to a common stock and employed in some trade or business and who share the profit and loss arising the form. the common stock so contributed is denoted in money and is capital of the Company. The person who contributes to it or to whom it pertains are members. The shares are always transferable although the right to transfer is often more or less restricted.”[1]

As per Section 2(20) of The Companies Act, 2013 defines Company as “a company incorporated under this Act or under any previous company law”.[2]

Difference between Public and Private Company

Private Companies are companies which need to have a minimum paid-up capital of one lac rupees and have a restriction with respect to transferability of shares. Public Companies are those companies that have a minimum paid-up capital of five lakh and that which is not a private company.[3] A public company is listed in recognized stock exchange and the shares are purchased and sold in such exchanges.[4]

The difference between Public and Private Company are as follows:

1. Shareholders:

In a private company, the minimum number of shareholders is two whereas in public it is seven. In public company there can be an unlimited number of shareholders but in private company it is restricted to 200.

2. Capital:

The minimum capital in public company is five lac rupees and in private company it is one lac rupees.

3. Directors:

The minimum number of Directors to be appointed in a public company is three whereas in private it is two. The maximum being fifteen in both.

4. Remuneration of Directors:

Managerial remuneration is restricted in public companies however there is no such restriction in private companies

5. Shares:

There is a restriction on the transferability of the shares of the private company. Shares of public company enjoy free marketability in public and are transferable in an easy manner in the stock exchange.

6. Compliances:

Compliance and reporting are high when it comes to public company. Private Companies enjoy several exemptions in this aspect.

7. Finances:

The financial statements of a public company should be made available in public, the private company need not do so.

8. Public Subscription:

Private companies are restricted from inviting subscriptions from the public. The public company by its nature is required to invite share subscriptions from the public

9. Prospectus:

Public companies need to issue prospectus to the public. Private companies need not issue the prospectus to the public as the shares are not invited from the public. The shares are privately owned by a group of people.

10. Name:

The Public Company should have its name suffixed with “Ltd” whereas a Private Company must suffix its name with “Pvt Ltd”

CONCLUSION

Companies are not only classified as public and private. There are several more kinds of classification on the basis of ownership, liability and such other reasons. Companies are the forms of business which are regulated by the government in all aspects when compared to other forms of business. The media, social and governmental audits of companies enable consumers to know whose product they are buying or whose service they are availing. For the expansion of any business, it’s better for it to function as a company and avail governmental benefits.

[1] Sunita Meena, “What is Company?”, Legal Services India, http://www.legalserviceindia.com/legal/article-1293-what-is-company.html

[2] Section 2 (20), Companies Act 2013

[3] Section 2 (68), Section 2 (71) Companies Act 2013

[4] Amitav Ganguly, Public v Private, Taxguru, https://taxguru.in/company-law/public-private-company.html

This Article is Authored by Dechamma KC, 4th Year B.B.A LL.B Student at JSS Law College, Mysuru.

Also Read – What Is A Company? Advantages And Disadvantages Of The Company

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