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The Key Differences Between Private Limited Companies and Public Limited Companies

July 1, 2023 by Team Instabizfilings

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Are you considering starting a business and wondering which type of company registration to go for? Understanding the differences between private and public limited companies is crucial to making an informed decision. In this blog, we'll break down the key differences between these two types of companies to help you make an informed decision.

 

What Is a Private Limited Company?

A Private Limited Company is a type of company that is privately held and owned by a small group of individuals, often family members or friends. It is not publicly traded on the stock exchange, and the shares cannot be sold to the general public. Private limited companies are often smaller in size and operate with fewer formalities than public limited companies.

 

What Are the Advantages of a Private Limited Company?

1. Limited Liability: The owners of a private limited corporation have limited liability, which means that their personal assets are protected if the company incurs debts or legal issues.

2. Greater Control: Private limited companies are owned by a small group of individuals who have greater control over the company's operations, policies, and decisions.

3. Privacy: Private limited companies are not required to disclose their financial information to the public, providing greater privacy to the owners.

 

What Are the Disadvantages of a Private Limited Company?

1. Limited Capital: Private limited companies cannot raise capital through public offerings, making it harder to raise significant funds.

2. Limited Growth: Private limited companies often have limited growth potential due to their inability to issue shares to the public and attract new investors

 

How to Register a Private Limited Company?

To register a private limited company, you will need to follow the steps below:

a. Arrange for minimum 2 Directors and 2 Shareholders for registraion of Private Limited Company

b. Choose a unique name for your company and check its availability with the Registrar of Companies (ROC).

c. Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the company's directors.

d. File the required documents with the ROC, such as the Memorandum of Association (MoA) and Articles of Association (AoA).

e. Obtain a Certificate of Incorporation from the ROC.

f. Get Certificate of Commencement from the ROC

 

What Is a Public Limited Company? 

A public limited company is publicly traded on the stock exchange, and the shares can be bought and sold by the general public. Public limited companies are often larger in size and operate with greater formalities than private limited companies.

 

What Are the Advantages of a Public Limited Company?

1. Access to Capital: Public limited companies can raise capital through public offerings and attract a large pool of investors, making it easier to raise significant funds.

2. Greater Growth Potential: Public limited companies have greater growth potential due to their ability to issue shares to the public and attract new investors.

 

What Are the Disadvantages of a Public Limited Company? 

1. Greater Regulatory Requirements: Public limited companies are subject to greater regulatory requirements, such as financial information disclosure, which can be time-consuming and costly.

2. Loss of Control: Public limited companies have a larger number of shareholders, which can dilute the ownership and control of the company.

 

How to Register a Public Limited Company? 

To register a public limited company, you will need to follow the steps below:

a. Arrange for minimum 3 Directors and 7 Shareholders for registraion of Public Limited Company.

b. Choose a unique name for your company and check its availability with the Registrar of Companies (ROC).

c. Obtain a Digital Signature Certificate (DSC) and Director Identification Number (DIN) for the company's directors.

d. File the required documents, such as the Memorandum of Association (MoA) and Articles of Association (AoA), with the ROC.

e. Obtain a Certificate of Incorporation from the ROC.

f. Get Certificate of Commencement from the ROC

 

Key Differences between Private Limited Companies and Public Limited Companies

Aspiring entrepreneurs often struggle to decide whether to form a Private Limited Company or a Public Limited Company. Both structures have their own unique features, benefits, and drawbacks. In this, we will highlight the key differences between Private Limited Companies and Public Limited Companies to help you make an informed decision.

Ownership and Shareholders

A Private Limited Company is owned and controlled by a small group of people, often friends or family members. On the other hand, a Public Limited Company is owned by a large number of shareholders. These shareholders are not necessarily known to each other and may include retail investors, institutional investors, and other organizations.

Minimum and Maximum Number of Members

To form a private limited corporation, a minimum of two members and a maximum of 200 members are required. To form a Public Limited Company, a minimum of seven members and no maximum limit is required.

Share Transfer

In a Private Limited Company, shares cannot be freely transferred or sold without the consent of the other shareholders. This ensures that the control and management of the company remain in the hands of the existing shareholders. However, shares can be easily transferred and sold in the open market without restrictions in a Public Limited Company.

Disclosure Requirements

A private limited corporation is not required to disclose its financial statements or other confidential information to the public. On the other hand, a Public Limited Company is required to disclose its financial statements, annual reports, and other information to the public, shareholders, and other stakeholders.

Listing on Stock Exchange

A Public Limited Company can list its shares on a stock exchange and raise funds by issuing new shares to the public. This can increase the company's visibility, credibility, and financial resources. However, a Private Limited Company cannot list its shares on a stock exchange.

Management and Control

In a private limited corporation, the management and control of the company are in the hands of the directors and the shareholders. In a Public Limited Company, the management is usually delegated to the board of directors, who the shareholders elect.

 

Wrapping Up!

In conclusion, both Private Limited and Public Limited Companies have pros and cons. The choice between the two depends on several factors, such as the company's size, the nature of the business, the number of shareholders, and the company's long-term goals. It is essential to carefully consider these factors before making a decision. Instabizfilings, as a company that provides registration services for both types of companies, plays a crucial role in helping entrepreneurs and businesses navigate the legal requirements of company registration and compliance. Their services make it easier for businesses to focus on their core operations and growth while leaving the legal complexities to experts.

 


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