The following are the main points of distinction between a private limited company and a public limited company :
1. Minimum number of members
The minimum number of members to constituted a private company is two but a public company cannot be formed unless there are at least seven members.
2. Maximum number of members
The maximum number of members is case of a private company is fifty but there is no maximum limit of members for a public company. It can have members equal to the number of shares issued by it.
3. Issue of Prospectus
A private company cannot invite public to subscribe to its shares or debentures by issue of prospectus for inviting public to subscribe to its shares or debentures. Membership of a private company is restricted to friends because it cannot invite public to subscribe to its shares.
4. Transfer of shares
The transfers if shares is generally restricted by the articles of association of a private company. But the shares of a public company are freely transferable to subscribe to its shares.
5. Commencement of business
A private company can allot shares and commence business after getting the certificate of incorporation from the Registrar of Companies. But a public limited company cannot allot shares unless it has collected minimum subscription and has received at least 5 % of the nominal amount of shares applied in cash on application. It can commence business only after getting the certificate of commencement of businesses. As per recent guidelines issued by Central Government, the minimum subscription in case of public or right issue of shares or debentures, has been fixed at 90 % of the entire issue. Such subscription must be raised within 90 days of the close of issue.
6. Number of directors
A private limited company must have at least two directors whereas a public limited company is required to have at least three directors.
7. Quorum for meetings
The quorum for a meeting of a private company is two while five members constitute a quorum in case of a public company.
8. Use of the word ‘Limited’
In case of a private company, the word ‘Private Limited’ must be used at the end of the name of a company. But the word ‘Limited’ is used at the end of the name of public company.
9. Legal formalities
A private limited company is required to observe a less number of legal formalities as compared to a public company. For example, a private company is not required to call a statutory meeting and to file a statutory report to the Registrar of Companies. A private company need nit send the list of directors, a director’s consent to act as such, a director’s contract to take up qualification shares etc, to the Registrar of Companies.
10. Restriction regarding managerial remuneration
Public limited companies cannot pay managerial remuneration in any financial year more than 11 % of the net profits of the company for that financial year. But no such restrictions applies in case of a private limited company.