Difference Between Private and Public Company under Companies Act 2013
🔍 Overview: Companies Act, 2013
The Companies Act, 2013 classifies companies based on ownership, liability, and public interest. The two most common types of companies are:
Private Company – Section 2(68)
Public Company – Section 2(71)
📘 1. DEFINITION
✅ Private Company – Section 2(68)
A Private Company means a company that:
Restricts the right to transfer its shares,
Limits the number of its members to 200 (excluding past and present employees), and
Prohibits any invitation to the public to subscribe for its securities.
✅ Public Company – Section 2(71)
A Public Company is a company which:
Is not a private company, and
Has a minimum paid-up capital as may be prescribed,
May invite the public to subscribe to its securities,
May have unlimited members.
📊 2. KEY DIFFERENCES BETWEEN PRIVATE AND PUBLIC COMPANY
| Basis | Private Company | Public Company |
|---|---|---|
| Section | Section 2(68) of Companies Act, 2013 | Section 2(71) of Companies Act, 2013 |
| Minimum Members | 2 | 7 |
| Maximum Members | 200 (excluding employees) | No upper limit |
| Minimum Directors | 2 | 3 |
| Maximum Directors | 15 (can exceed with special resolution) | 15 (can exceed with special resolution) |
| Transfer of Shares | Restricted by Articles | Freely transferable |
| Issue of Securities | Cannot invite public | Can issue shares/debentures to public |
| Use of Name | Must include “Private Limited” | Must include “Limited” |
| Listing on Stock Exchange | Cannot be listed | Can be listed |
| Commencement of Business | On incorporation + filing of declaration | On incorporation + filing of declaration |
| Filing Requirements | Fewer compliance requirements | Extensive compliance (e.g., SEBI, stock exchanges) |
| Quorum (General Meeting) | 2 members personally present | 5 members personally present |
| Managerial Remuneration | No strict ceiling under Act | Capped under Section 197 of Companies Act |
⚖️ 3. IMPORTANT CASE LAWS
📌 Salomon v. Salomon & Co. Ltd. (1897)
Principle: Corporate Personality
Though not under Indian law, this English case is foundational.
It held that a company is a separate legal person from its members, whether public or private.
Applies equally to both private and public companies.
📌 Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd. (1981)
Supreme Court of India
Concerned a conflict between Indian and foreign shareholders in a private company.
Court held that even private companies are subject to legal scrutiny if the majority abuses its power against minority shareholders.
Reinforced the principle that private companies aren't immune from judicial intervention.
📌 Charanjit Lal Chowdhury v. Union of India (1950)
Facts: Involved state control over a public company (Sholapur Spinning and Weaving Company).
Held that the public interest allows government intervention in the management of public companies.
Reinforces that public companies are subject to higher public scrutiny due to their economic impact.
📌 Dale & Carrington Investment (P) Ltd. v. P.K. Prathapan (2004)
Supreme Court of India
Case involved illegal allotment of shares in a private company to gain control.
The court pierced the corporate veil and held that directors had acted oppressively.
Demonstrates that even private companies must act in good faith and comply with statutory provisions.
📌 Gopal Jalan & Co. v. Calcutta Stock Exchange Association Ltd. (1963)
Facts: Concerned listing of shares of a public company.
The Supreme Court ruled that listing is not automatic and requires fulfilling all conditions under the stock exchange rules.
Reinforces stricter compliance norms for public companies.
🏁 4. CONCLUSION
The distinction between private and public companies under the Companies Act, 2013 is crucial for governance, compliance, and shareholder rights.
Private companies enjoy greater flexibility in operations but have restrictions on ownership and fundraising.
Public companies have wider access to capital but are subject to greater regulatory control and public accountability.
The Companies Act ensures that both types of companies maintain transparency and responsibility, and case law shows that judicial scrutiny is applied to ensure fair corporate governance in both.
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