Difference between Public Limited and Private Limited Companies
Introduction
Companies can be Public Ltd. or Private Ltd. based on ownership and rules. A Public Ltd. company can sell shares to the public, while a Private Ltd. company is owned by a small group. Knowing the difference helps businesses choose the right option.
1. Public Limited Company (PLC)
A Public Limited Company (PLC) is a type of business entity that is registered under the Companies Act, 2013. It is a company that can sell shares to the public and can be listed on a stock exchange.
Key Features of Public Limited company
- Can sell shares to the public through the stock market.
- Requires a minimum of two directors and at least seven shareholders.
- Must have “PLC” in its name.
- Requires a minimum share capital (varies by country, e.g., £50,000 in the UK).
- More regulatory compliance and public disclosure requirements.
Advantages of Public Limited company
- Can raise large capital by selling shares.
- More credibility and public trust.
- Ownership can be transferred easily through shares.
Disadvantages of Public Limited company
- More legal regulations and reporting obligations.
- Risk of takeover if majority shares are bought.
- Expensive to set up and maintain.
2. Private Limited Company (Ltd.)
A Private Limited Company (Pvt Ltd) is a business that is privately owned and registered under the Companies Act, 2013. It is a popular choice because it protects the owners from personal financial risk, operates as a separate legal entity, and makes it easier to raise funds.
Key Features of Pvt Ltd Company
- Shares are not available to the public.
- Requires a minimum of one director and one shareholder.
- Must have “Ltd.” or “Pvt Ltd.” in its name.
- No minimum share capital requirement in many countries.
- Limited liability for shareholders.
Advantages of Pvt Ltd Company
- Greater control over the business (no outside shareholders).
- Less regulatory burden than PLCs.
- Lower risk of hostile takeovers.
Disadvantages of Pvt Ltd Company
- Limited ability to raise funds compared to PLCs.
- Ownership transfer is more restricted.
- Limited growth potential compared to PLCs.
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Key differences between Public Limited Companies (Ltd.) and Private Limited Companies (Pvt. Ltd.)
| Feature | Public Limited Company (Ltd.) | Private Limited Company (Pvt. Ltd.) |
| Ownership | Shares are freely transferable and can be listed on stock exchanges. | Shares are not freely transferable; limited to private investors. |
| Minimum Number of Members | Requires at least 7 shareholders. | Requires at least 2 shareholders. |
| Maximum Number of Members | No limit on the number of shareholders. | Limited to 200 shareholders. |
| Minimum Directors | Must have at least 3 directors. | Must have at least 2 directors. |
| Capital Requirement | No minimum capital requirement (but must be sufficient for business needs). | No minimum capital requirement. |
| Stock Exchange Listing | Can be listed on stock exchanges (NSE, BSE) and raise capital from the public. | Cannot be listed on stock exchanges; funding is private. |
| Regulatory Compliance | More stringent, requires regular disclosure and compliance with SEBI regulations (if listed). | Comparatively fewer regulations and compliance requirements. |
| Public Fundraising | Can issue shares to the general public through IPOs (Initial Public Offerings). | Cannot issue shares to the public; funding is from private investors. |
| Audit & Reporting | Mandatory audits and public disclosures, including financial statements. | Audit is mandatory, but financial statements are not publicly disclosed. |
| Control & Decision Making | Decision-making is influenced by public shareholders. | Decision-making remains with the private owners, ensuring better control. |
Conclusion
A Public Ltd. company is best for businesses that want to raise money from the public and grow big, but it comes with more rules and regulations. A Private Ltd. company is better for those who want more control, fewer legal requirements, and private investments. The choice depends on how much flexibility and funding a business needs.
Suggested Read :
Checklist for Pvt Ltd Company Compliance
Enterprises vs Pvt Ltd Companies
FAQ
1. What is the main difference between a Public Ltd. and a Private Ltd. company?
A Public Ltd. company can sell shares to the public, while a Private Ltd. company is owned by a few people and cannot sell shares to the public.
2. Which type of company is better for startups?
A Private Ltd. company is better for startups because it has fewer rules and gives the owners more control.
3. Can a Private Ltd. company become a Public Ltd. company?
Yes, a Private Ltd. company can change into a Public Ltd. company by following legal steps and selling shares to the public.
4. Which company type has fewer legal rules?
A Private Ltd. company has fewer legal rules, while a Public Ltd. company has to follow stricter laws.
5. Who can invest in these companies?
In a Private Ltd. company, only selected people can invest. In a Public Ltd. company, anyone can buy shares
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