Not all companies are the big multinational and large companies to see around you.

The Companies Act, 2013 has described various types of companies that can be
incorporated in India. Here we will be focussing on two major types of companies,
the Private Company and Public Company. Let’s get started.

Private Company
A private company cannot offer its share to the general public as it is restricted, in a
private company the shares are privately held by the members or investors. The private
company the suffix after its name Private Limited (PVT LTD), the main advantage of a
private company is they don’t need to disclose their financials to the general public. The
public company is only answerable to its members/investors only.

This is a type of company that finds mention in the Companies Act, 2013. The
purpose of private companies is when the business is not very large, but the
owners/management still want to opt for a company over
a partnership or proprietorship. Let us look at some of the features/characteristics
of a private company.

 Minimum numbers of members required to incorporate a private company are

2. There is also a maximum limit of 200 members. However, joint members of
shares are counted as one member.
 The minimum paid-up capital for a private company has been kept at one lacs.
There is no maximum limit in this case.
 Transferability of shares by its members is restricted. Such transfers are not
absolutely prohibited, but there are certain restrictions put by the Companies Act.
This is to avoid takeovers by larger companies and multinationals and ensure the
sanctity of private companies
 Private companies under no circumstances can accept deposits from the public.
It cannot invite members of the public to subscribe to its shares either.
 The number minimum of directors to be appointed are 2. No independent
directors are required.
Privileges of a Private Company

Now a private company under the Companies Act enjoys certain privileges over a
public company. Since a private company does not take deposits from the public,
certain rules have been relaxed in their favour. Let us take a look at all the
privileges that private companies enjoy.
 The minimum number of members are restricted to 2. So it does not require
many promoters to start a private company.
 Since the members of the public are not invited to subscribe shares there is no
need to issue a prospectus on any such similar document.
 There is no need to wait for a minimum subscription amount to be received.
The members can allot shares within themselves and immediately incorporate
the company.
 While incorporation with the registrar of companies is compulsory, there is no
commencement certificate in the case of private companies. The business can
start functioning immediately after receiving the certificate of incorporation.
 In case of a private company, there is no need to maintain a register
of shareholders.
 It can allot any type of shares to its members. even shares with differential
voting rights which are prohibited for public companies.
 Its financial accounts are not accessible by any member of the public. It can
maintain some secrecy in the matter.
 The directors need not retire by rotation and there is no limit on their
remuneration as well.

Public Company
A public company under the companies act 2013 means a company that is listed on a
stock exchange and can sell its securities to the general public.. A publicly listed company
means their shareholders can sell securities freely on a stock exchange. A public company
needs to disclose its annual report to all the stakeholders. A public company can expand
its business by issuing more shares to the general public.

In simple terms, a public company is a company whose shares can be subscribed

by members of the public. As per the Companies Act, 2013 a public company is

 A company that is not a private company

 Has a minimum of seven members, no maximum limit is mentioned
 Has a minimum paid-up capital of five lacs, again there is no maximum limit
 A private company that is a subsidiary of a public company, will be considered
a public company
There are certain documents required to be filled by a public company with the
Registrar of companies, so let us take a look at these documents
 Memorandum of Association: This is the constitution of a company. States the
objective of the company, the total capital, the name of the company, the
registered address etc.
 Articles of Association: This document contains rules and regulations of the
internal management of the company.
 Prospectus: Because the company wishes to invite funds from the public it
must register and issue a prospectus or a document in liu of a prospectus. Any
material misstatement in the prospectus by the directors, promoter, or the experts
is a criminal liability.
Private Company vs Public Company

Point Private Company Public Company

Paid-up Capital Minimum paid-up capital of Rs 1.00.000/- Minimum paid-up capital of Rs 500.000/-

No. of Members Minimum 2 members and maximum 200 Minimum 7 members, no max limit

Name of Company Name must end in “private limited” Name must end in “public limited”

Minimum two directors, and no need for Minimum 3 directors, and if listed company
No. of Directors
independent directors one-third must be independent

Managerial Restricted to 11% of the Net profit of the

There are no restrictions
Remuneration company

Quorum will depend on the total number of

Quorum of Meetings Minimum two members, present in person
members of the company

Private companies cannot have public offers

Public offer Public offers must be in the demat form only
for shares

If paid capital exceeds 100 crores, or turnover

Accepting Deposits Not allowed according to the act exceeds 500 crores, the company can accept
public deposits

Q: What is a certificate of incorporation?

 When a company, private or public is successfully registered with the Registrar of
Companies, he will issue a certificate of incorporation. This is the conclusive
evidence that a company has been duly registered and all necessary procedures are
complied with.

Under what circumstances a Pvt company be

converted to public company
Table of Contents [show]
Circumstances when a private ltd company becomes a
public ltd company
The private limited company form of organization is preferred by
businessmen because of the special privileges it enjoys. Capital is sourced
from close friends, relatives and known persons and not from the public.
Therefore, the Companies Act, 1956 does not impose stringent rules and
regulations as those imposed on Public limited companies. In certain
circumstances, a private limited would become a public company.
They are:

a. Conversion by default
b. Conversion by operation of law
c. Conversion by choice or by option
Once a private company becomes a public company under any of the above
mentioned circumstances, it would lose the privileges it enjoyed as a private
company. On conversion, the rules and regulations applicable to public
limited companies would become applicable.

1. Conversion by default
A private company:

i. restricts the right to transfer shares,

ii. limits the maximum number of members to 50 and
iii. prohibits invitation to the public for subscription of shares or
debentures.
If any of these conditions are violated, a private company would become a
public Company by default.

2. Conversion by operation of law

In the following cases, a private company becomes a public company by the
operation of law:

i. When not less than 25% of the paid up share capital of a private
company is held by one or more public companies,
ii. When the average total turnover of the private company is not less than
Rs.25 crores for three consecutive years,
iii. When the private company holds not less than 25% of the paid up
share capital of a public company.
iv. When the private company invites, accepts or renews deposits from the
public.
The Companies Amendment Act, 2000 has given an option to these
companies, either to continue as public limited companies or convert
themselves into private limited companies by making the necessary changes
in their Articles.
3. Conversion by Choice or Option
A private company out of its own free will can choose to convert itself into a
public company. Generally, when private companies plan to expand and
require more capital resources, they would convert themselves into public
companies.

By becoming public companies they can issue shares or debentures to the

public and get the required amount of capital. In India, many organizations
which commenced operations as private companies have got themselves
converted into public limited companies in order to expand and diversify.
Any private company which desires to get converted into a public company
should make the necessary changes in the Articles and follow the below
mentioned steps:

a. It should convene a general meeting and pass a special resolution duly

altering the Articles.
b. The copy of the resolution along with the amended Articles should be
filed with the Registrar within 30 days of passing the special resolution.
c. The number of members should be increased to 7.
d. The company has to apply to the Registrar for obtaining a fresh
certificate of incorporation with the words ‘Private’ deleted from its
name.
Formation of a private limited Company has its own sets of advantages and disadvantages. It is
seemingly the best form of business when Directors and shareholders are closely held and where the
Directors have enough funds to arrange it between themselves or their relatives or acquaintances.
However, when the brand has to go really big then later after some point of time, it is preferred to
convert your private limited Company into a public limited. In this article, we shall study about the
benefits, process and time for conversion of a private Company into a public Company.
Benefits of Conversion of Private Limited Into A Public Limited Company:
Raising of capital through public issue of shares
This is the primary and the major benefit of a public Company that it can raise funds through IPO,
Secondary Listing, Debentures by listing the same on exchanges and raising funds thereof.
No restriction on number of shareholders
The maximum number of shareholders in a private limited Company is 200 whereas there is no such
limit on number of shareholders in a public limited Company.
Brand Awareness
When the brand is doing really good then it is generally preferred by the founders and management
to go for listing and raise funds from public. This is a great tool for creating brand awareness’ as the
particular brands comes under everyone’s notice.
Limited Liabilities
 The liability of each shareholder is limited to the amount of shares subscribed by them.
Transferability of shares
The transferability of shares is limited in case of a private limited Company whereas the shares of a
public limited Company are easy transferable among the existing shareholders or even new one.
REGULATORY FRAMEWORK:
Section 18, Section 13, and Section 14 of the Companies Act, 2013 read with Rule 33 of
the Companies (Incorporation) Rules, 2014.
PROCEDURE FOR CONVERSION INTO A PUBLIC LIMITED COMPANY
CONVENE A BOARD MEETING:
Issue Notice of Board Meeting to all the Directors of Company at their addresses registered with the
Company, at least 7 days before the date of Board Meeting. A shorter notice can be issued in case of
urgent business. The following mandatory agendas need to be taken care of:
 To fix the day, date, time and venue of the General Meeting and to approve the draft notice
convening the General Meeting along with the explanatory statement.
 Pass resolution for conversion of private limited Company into a public Company.
 Alteration of memorandum and articles of association of the Company pursuant to conversion.
CONVENE EXTRA ORDINARY GENERAL MEETING:
Notice for convening the General Meeting shall be given at least clear 21 days before the actual date
of a General Meeting in writing, or on shorter notice, whatever may be decided by the Board to all the
Directors, Members, Auditors of Company, Secretarial Auditor, Debenture Trustees and to others
who are entitled to receive the notice of the General Meeting for passing the resolution for conversion
of the Company into a public Company and consequently, alteration of memorandum and articles of
association thereof.
FILING OF FORM INC-27 WITH ROC:
For effecting conversion of Private Company into Public Company, we need to file an application in e-
Form INC-27 with the registrar along with prescribed fees within fifteen days of passing of Special
Resolution along with the following attachments: –
 Minutes of the Members’ Meeting
 Certified True Copy of Special Resolution
 Altered Memorandum of Association
 Altered Articles of Association
 Any other documents, as required.
FILING OF FORM MGT-14 WITH ROC
File e-Form MGT-14 with the Registrar of Companies within 30 days of passing the special resolution
in the General Meeting, along with following documents as an attachment:
 Certified True Copies of the Special Resolutions along with explanatory statement
 Copy of the Notice of meeting sent to members
 An altered copy of the Memorandum of Association and Article of Association
 Shorter Notice Consent, if any.
On satisfaction, the Registrar shall issue the fresh certification of incorporation.