When a group of people, have common interests, they come together to achieve a common purpose or engage into business or generate profit by establishing a legal entity may be called as company. Whereas as per the companies act 2013 – A company means an entity which is incorporated as per the provisions of Companies act 2013 or previously enacted act.

A public limited company is a company that is managed by directors and owned by its shareholders and it has feature of inviting the shareholders publicly and have feature of transferability of shares without restriction. Shares in this type of company are sold and traded amongst the public. All Public Limited Companies may listed on a stock exchange, like National Stock Exchange and Bombay Stock Exchange, subject to their rules and regulations.

As per companies act 2013 section 2 (71), states that company which is not Private Company is called as Public Limited Company.

On the other hand, a Private Limited Company operates differently. Unlike public limited companies, private entities do not offer their shares for public subscription through stock exchanges. Instead, trade of shares is private, restricted and limited to ownership.

As per Companies Act 2013 under section 2 (68)

“Private Company” means a company   having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles, —

(i) restricts the right to transfer its shares;

(ii) except in case of One Person Company, limits the number of its members to two hundred:

Key differences between a public limited company and private limited company

Basis

Public Company

Private Company

Meaning

A public limited company means a company that is listed on a recognised stock exchange and whose shares are publicly traded.

A private limited company refers to a company that is not listed on a stock exchange and the shares are held privately by the members.

Number of Members

Minimum 3 Directors and 7 Shareholders (total of 7 members where directors can perform as shareholders at the same time) and there is no limit for Maximum members.

Minimum 2 (Directors who can perform as shareholders as well) and Maximum 200 members.

Articles of Association

It can draw up its own articles of association or adopt Schedule F.

They must draw up their own articles of association.

Transfer of shares  

The shares of a publicly traded company are freely transferable, i.e., freely tradable in an open market called the stock exchange.

Shares of a private company are not freely transferable.

Public subscriptions 

It may invite the public to subscribe for its shares or bonds.

Issuance or transfer of shares or bonds to the public is prohibited. 

Minimum allotment amount  

The company cannot issue shares unless it reaches the minimum subscription specified in the prospectus.

The company may allot shares without obtaining a minimum subscription.

Starting a business 

After incorporation, it requires a certificate of commencement of business.

You can start a business immediately after receiving an extract from the commercial register.

Appointment of director 

One director may be appointed by one resolution.

Two or more directors may be appointed by one resolution.

Statutory meeting 

It is mandatory

It is optional.

Use of suffix 

A public company must compulsorily include the words “Limited” in its name. 

A private company must include “Private Limited” as a suffix in its name.

Disclosing reports to the public

A public company must compulsorily issue quarterly and annual financial statements to the public.

No compulsion to disclose its financial results to the public.

Benefits of a Public Limited Company

Public Limited Company form of business is an easy and simple way to get into the corporate world and it is an easy way for a good start-up.  It offers the benefit of limited liability to its members whereas a possibility of issuing shares to the public, which is not the case in a private limited company. This form of the company allows you to raise money from the public, you can allot or transfer the shares to the public. It also offers fewer restrictions in terms of transferability of shares as compared to A private limited Company.

  • Shares are freely transferable and no one’s consent is required for such transfer.
  • The liability of the shareholder(s) is limited to face value of their respective shares
  • Day to day activities of the company are not undertaken by the shareholders
  • Can raise capital from the public

Pre-requisites for conversion

  1. Approval of shareholders by obtaining their consent through a special resolution.
  2. Fulfilling the mandatory requirement of at least 3 directors.
  3. Minimum 7 shareholders (they can be directors also).
  4. Meet the minimum capital requirement of capital resources.
  5. Recent financial statements and audit reports.

Steps for Converting Private Limited Company into Public Limited Company:

  1. Step 1: Conduct Board Meeting.

The notice of this meeting is sent to all the Directors at least 7 days prior to the meeting. The agenda of this meeting should include:  approval of shareholders for conducting EGM, fixing the date, time, and venue for EGM, adoption of a new Memorandum of Association (MOA) and Articles of Association (AOA), approval regarding conversion of the private limited company into a public limited company, and passing of a Board Resolution for the increase in the number of directors.

  1. Step 2: Issuance of notice of EGM and convene EGM

Once the Board Meeting has taken place, the Director/Company Secretary appointed to circulate the notice regarding the EGM may issue to the notice to all at least before 21 days of the meeting. Then an Extraordinary General Meeting is conducted to pass special resolutions regarding: adoption of altered name clause in MOA, adoption of new restrictions and limitations in AOA, changed limit of number of directors of the company. It will also be ensured that the company has completed the filing of annual returns of financial statements to the RoC.

  1. Step 3: Filing of the form with Registrar of Company.

E-Form MGT – 14:This form has to be filed with the RoC within 30 days of passing the respective resolutions along with the prescribed fees. The form is to be filled on the MCA portal, with the notice of the EGM along with the Explanatory Statement as per Section 102 of the Companies Act, certified copies of the resolutions which are passed in the EGM- copy of the new MOA, and copy of the new AOA
E-Form INC – 27:This form is specifically for the application for conversion of a private limited company into a public limited company. This form has to be filed with the RoC within 15 days after passing of the resolutions in the EGM. The documents attached with the form are: Minutes of the meeting, copy of the new AOA, copy of the new MOA, copy of the resolution(s) passed at the EGM, list of the members of the company along with the essential details.

After being satisfied with the filing of E-Forms, the Registrar of Companies will issue the fresh certificate of incorporation of a company and close up the prior registration of the company.

Post conversion procedure

  • First of all, the MoA, and AoA are to be printed and intimation must be sent to all the taxation and other related statutory bodies regarding change in the type of the company.
  • Once the certificate of incorporation of a new company has been issued by the RoC, the company will have to apply for a fresh PAN card.
  • All business letterheads and other related documents should be updated with the company’s new name.
  • The details of bank account of the company have to be updated.