This article has been written by Kruti Brahmbhatt, exploring the differences between public and private companies. This article presents the detailed differences based on the incorporation of the company, shareholders and members, control and management, various regulatory compliances, and disclosure requirements.

This article has been published by Shashwat Kaushik.

Introduction

We generally find words like ‘private’, ‘private. Ltd.’ or the term ‘public’ behind the names of the companies. These are the words used to categorise the companies into public and private companies. Both these kinds of companies have immensely contributed to the growth and development of the corporate world. However, it is extremely important to know the distinction between a public company and a private company. 

Both of the companies are governed under the Companies Act, 2013, however, they have huge differences in their nature, operations, management and most importantly the method of raising funds. Knowing these distinctions is crucial while incorporating the company or even while making any decisions regarding investing funds in the securities of a company.    

Difference between a public and a private company 

In general terms, a company is a group or association of people voluntarily coming together to generate revenues from commencing business. As per Section 2(20) of the Companies Act, 2013, a company means a company incorporated under this Act or any previous company law. The Companies Act, 2013, provides for public and private companies. Under the Companies Act, 2013, the companies are classified on the following basis: 

• Based on the size or number of members, 
• Based on control, 
• Based on  ownership, 
• Based on domicile. 

Public and private companies are classified on the basis of the size or number of members. The classification of the companies becomes crucial when it comes to acquiring capital, ownership structure, regulatory compliance, disclosure, and winding up. Both public and private companies must follow specific rules and regulations prescribed for them under the Companies Act, 2013.

Meaning of public and private company

Meaning of public company 

Public companies are those whose shares are listed on the stock exchange, and anyone buying the shares becomes a part of the company’s owner. These companies do not have a maximum limit on the number of members. Any person willing to become a part of the company may buy the shares or debentures of the company and become part of the company. 

Section 2(71) of the Companies Act, 2013, defines a public company, which states that a  public company means a company which, 

• Is not a private company, and 
• Has a minimum of five lakh rupees or more of paid-up share capital. 

In the case of a subsidiary company, if the holding company is a public company, then the subsidiary company shall also be deemed a public company if it terms itself as a private company in its articles. 

Meaning of private company 

Private companies are those that have a limited number of members and have certain restrictions on the transferability of their shares.  Private companies are not allowed to offer securities publicly.  These companies must add the word “private” after the company’s name. 

Section 2(68) of the Companies Act, 2013, defines a private company, which states that a private company means a company which-

• A company which has a minimum of Rs. 1 lakh as paid-up capital or higher paid-up capital as may be prescribed by its articles. 
• Has restrictions on the transferability of shares,
• Has a limitation on its number of members to 200; however, One Person Company is an exception to this requirement, and the persons employed in the company or previously working employees shall not be considered members of the company. In cases where the shares of the company are jointly owned by two or more persons, they shall be treated as a single member. 
• Has a prohibition on inviting the public to buy or sell the securities of the company.

Characteristics of public and private company

Out of all forms of business entities and enterprises in the present corporate world, public and private companies are still the most prevalent form of business structure. The reason behind such kind of prevalence is the distinct characteristics and benefits which they hold with themselves. To understand both kinds of companies, let’s initially begin with understanding their distinct characteristics: 

Characteristics of public company 

The important features or characteristics of the public company are listed below: 

• Legal Identity: the public company is a separate corporate body, which is different from its shareholders and members. 
• Share transferability: the most distinctive feature of the public company is its easy and convenient share transferability. The public can subscribe to the shares of the company and can even easily transfer them. 
• Limited Liability: the term limited liability means that a shareholder or any investor is liable only till the extent of their shares and holding in the company. This means that in cases where the company faces any kind of loss or damages, the shareholders or investors do not need to pay off the debts in their personal capacity. Their liability shall extend only to their shares. 
• Prospectus: the public company has the unique feature of having a right to issue a prospectus for inviting the public at large to invest and buy their securities. This prospectus contains the financial and operational details of the company. 
• Transparency: the public company has to maintain their company’s information regarding its financials, operations and other strategies in order to gain more investment from the public. The public company even under the Companies Act, 2013, is compelled to make some disclosures compulsorily. 

Characteristics of private company  

The important features of the private company are listed below: 

• Legal Identity: Similar to the public company, the private company also holds a separate legal personality from its shareholders and members. 
• Restrictive share transfer: The transfer of shares in the private company is restrictive, the company has to follow a due procedure for the transfer of shares. The rules and regulations on the share transfer operations have to be prescribed in the company’s Articles of Association. The transfer of shares only takes place when the board of directors have approved the same. 
• Liability clauses: The extent of liability in the private company depends on the type of private company. There are three kinds of private companies: Limited by shares, guarantee and unlimited liability.  
• Confidentiality: The private company is not compelled to make disclosures about its financial position. The decisions taken are confidential between the owners and members of the company. This also amounts to an increase in the company’s efficiency. 

Examples of public and private company

Examples of public company 

• Tata Consultancy Services (TCS), an IT services and business organisation, has played a crucial role in building the Indian economy stronger, generating lots of revenue and employment opportunities for the youth. 
• Infosys is a world leader and one of the top companies in providing digital services and consulting. 
• Sun Pharmaceuticals Industries is a specialty generic pharmaceutical company that is said to be the fourth largest in the world. 

Examples of private company 

• DHL Express(India) Private Limited, is into package transportation services. DHL Express India has its registered office in Mumbai. It’s the India wing of a German logistics company. 
• Google India Pvt. Ltd., is a multinational company, the main business of Google is internet-related services. 

Incorporation of a company 

Incorporation of a company means to provide a legal existence to a company. Incorporation of a company is a process that gives the company a separate legal identity, separate from its owners. It is crucial to note that it is not a compulsory process but is recommended because of the immense benefits the company receives after the incorporation of a company. 

While the incorporation of a company, choosing an appropriate name for a company is one of the most important aspects. A company name helps its target audience identify the company and make them buy its products. However, when choosing a company name, it has to be considered that the name isn’t trademarked or is not protected by any other entity. Failure to care for the provisions might lead the company into legal battles. 

A company name must be well-chosen to attract and develop curiosity amongst its customers. For instance, the company named “NUUTJOB,” deals with men’s products like Nuutwash, Nuutguard, sprays, etc. This name impressed the sharks on the Shark Tank India show. The name had played a major role in convincing the investors to invest. 

Chapter Ⅱ of the Companies Act, 2013, prescribes the detailed process of incorporation of a company. The steps for incorporation of a company are as follows: 

• Formation of the company and choosing an appropriate name for a company. 
• Appointment of Promoters for drafting the Memorandum of Association and Articles of Association. 
• Filing the required documents before the registrar to obtain a Certificate of Incorporation. 
• Paying the prescribed fees and obtaining the Certificate of Incorporation.  

These are the general steps for the incorporation of a company. There are certain requirements for the incorporation of a company based on its nature, whether public or private. 

Public company

Section 3(1)(a) of the Companies Act, 2013, states that for the formation of a public company, there must be at least seven or more people as members of the company. In addition, Section 3(a) of the Companies Act, 2013, states that in the case of a public company, if a minimum of seven members gets reduced for more than six months, each member might be severely liable for the debts.  

Public companies are allowed to raise funds from the general public. Section 4(1)(a) of the Companies Act, 2013, states that public companies must use the word “limited” at the end of the company name. 

As per Section 5(4) of the Companies Act, 2013, to form or amend the articles of a public company, a special resolution must be passed. 

Public companies can raise their capital by issuing Initial Public Offerings (IPO). This makes a transition from a private company into a public company. The purpose of an IPO is to raise capital for the market by issuing shares and debentures in the company. The company has to work with legal advisors and auditors to prepare itself for going public. It must even ensure that the legal requirements for getting public and issuing an IPO are met. However, this increases the company’s credibility and reputation in the market. The recent IPO by LawSikho is a perfect example of this concept.  

However, it is the great responsibility of the employees and auditors to prepare financial reports, manage and pitch to institutional investors, and, most importantly, maintain confidentiality regarding the company’s strategy. 

Advantages and disadvantages of being in a public company

Advantages of being in a public company	Disadvantages of being a public company
The members of a public company have limited liability. The shares of a public company are easily transferable A public company can raise funds easily through shares and debentures. A public company has more transparency and credibility. A public company can have unlimited members.	A public company faces a lack of confidentiality. Since it needs to disclose information about its business. Lack of control as the ownership of the company is distributed amongst the public. Issuing an IPO is a difficult process to meet the regulatory compliances.

Private company

Section 3(1)(b) of the Companies Act, 2013, states that for the formation of a private company, there must be at least two and less than two hundred persons as members of the company. The private companies are prohibited from raising funds from the public. They will acquire funds from their subscribers. As per Section 5(4) of the Companies Act, 2013, to form or amend the articles of a private company, all the members of the company must agree upon the change. 

Advantages and disadvantages of being in a private company

Advantages of being in a private company	Disadvantages of being in a public company
Private companies do not require any paid-up capital.A private company has control over its ownership. Private companies do not have confidentiality issues.Private companies can raise funds from angel investors or venture capitalists.	A private company cannot issue a prospectus. Private companies need to face restrictions on the transfer of shares and follow a lengthy procedure. A private company can have a maximum of 200 members. Private companies face a lack of capital issues.

Shareholders and members of public and private company

The shareholders are the real owners of the company. Usually, the shareholders and owners of a private company are the founders and the ones who have invested in the business. However, a public company has many shareholders and members as it is a listed company. 

The shareholders are the ones who get benefits and returns on their investments in the companies. The terms of their liability depend on the company. There are different terms for public and private companies. 

The companies limited by guarantee do not have share capital and, hence, don’t have shareholders. In such cases, they are members. Section 2(55) of the Companies Act defines the term member, which states that, 

•  A person can become a member of the company if they have subscribed to the memorandum of the company at the time of its formation. They are considered members once the company is registered. 
• Every person who has agreed in writing to become a member of the company can have their names entered in the register of members. 
• Every person who is the bearer of shares in the company. Such members are termed “beneficial owners.” Their names are registered on the depository list of the company. 

Here, understanding legal and beneficial owners is important. Legal owners are the ones whose names are registered in the official register of members. These are the legal title holders to the shares as per the records of the company. Where else the beneficial owners are the ones who enjoy the benefits and interests arising from the shares; however, these names are not registered in the records of the company. As the name suggests, they receive the benefits from the share only. 

Various aspects regarding shares and members are different in public and private companies. For instance, matters of share transfer and the regulation regarding public subscriptions and ownership. 

 Public company 

• Acquiring capital: Public companies can invite the public and issue IPOs for the general public to subscribe to their shares and debentures. The public company can raise funds by selling its securities on the market, and these shares are freely transferable in the open market. As per Section 58(2) of the Companies Act, 2013, the shares of public companies are freely transferable.
• Ownership: The shareholders are the real owners in the case of a public company. The ones who purchase the shares of the general public are considered to be the owners of the company because of the amount they have invested in the company through their shares.
• Beneficial owners: In public companies, the beneficial owners include individual or institutional investors. Their beneficial owners are frequently changing due to the stock exchange and ownership distribution among the public. 

Private company 

• Acquiring capital: The private company can’t acquire capital from the general public; generally, the companies are owned by the founders and the subscribed investors. There are certain restrictions on share transfers for private companies given in the Companies Act, 2013. They are as follows: 

1. As per Section 2(68) of the Companies Act, 2013, the private limited company shall restrict rights to transfer shares by its Articles of Association. 
2.  As per Section 56 of the Companies Act, 2013, the transfer of shares in a private company must be completed only after filing the proper instrument of transfer. i.e. Form No. SH-4 

Hence, private companies usually raise their funds from private investments or debts. 

• Ownership: The number of shares a member holds matters in a private company. The ownership completely depends on the number of shares the member holds. It provides the power to make crucial decisions in the company.
• Beneficial owners: In private companies, the beneficial owners are generally the founders, family members, and strategic investors. Their beneficial owners are more stable in private companies. 

Regulatory compliance in public and private company

Every company incorporated under the Companies Act, 2013, must follow certain rules and regulations prescribed. These regulatory compliances are essential to ensuring transparency and preventing fraud and malpractice in the company’s hands. Both public and private companies have certain regulatory requirements to be followed. 

The new updates to regulatory compliances have brought essential updates such as: 

• Related party: Under Section 89 of the Companies Act, 2013, any person or entity holds 10 per cent or more of the equity share by either means, directly or beneficial interest basis. They shall be defined under the Related Party. 
• Related party transaction: If the company or subsidiary company transacts with a non-related party but this transaction benefits the related party of the entity then in such a case this transaction shall fall under the definition of the related party transaction.
• Disclosure to the stock exchange: In case, any such related party transactions have taken place in the company, the same must be disclosed on the same day it publishes its financial results to the stock exchange. 

Public company

• Issue of securities: Section 23(1) of the Companies Act, 2013, states that the public company shall make a public offer through a prospectus or private placement. Further, the company can issue securities through a rights issue or a bonus issue. The term public offer does cover the initial public offer.
• Financial regulations: In the case of a public company, they need to publish their annual reports and disclose their financial reports and audits to the general public at large.
• Independent directors: A public company must have at least two independent directors. 

Private company 

• Issue of securities: Private companies are allowed to issue securities in the prescribed form under Section 23(2) of the Companies Act, 2013. The private company may issue the securities through rights issues or bonus issues; they may also issue the securities through private placement.
• Financial regulations: Unlike public companies, private companies have the advantage of keeping their accounts and financial information private. They are not obliged to publish their financial positions. 
• Independent directors: Private companies are not obliged to appoint directors. 

Control and management of public and private company

The control and management of the company’s affairs are usually dealt with by the board of directors and other officials of the company. As per Section 2(34) of the Companies Act, 2013, a director means a director appointed to the board of directors. They are the intellect of the company.  

Independent directors also play a crucial role in companies. They are non-executive directors. The independent director works on increasing corporate credit and maintaining governance standards. The independent directors need to make impartial judgements regarding matters of finances or the company’s strategies. They actively participate in the succession planning and audit committees. They are also vested with the responsibility to protect stakeholders’ interests. 

The control and management of the companies in the process of decision-making, voting rights, and work responsibility depend on and vary based on the nature of the company. The number of directors and meetings are also different.  

Back in 2020, the scathing report by Hindenburg Research targeted the Adani Group for “brazen” claiming accounting fraud and manipulating the stock, labelling it as the largest con in corporate history. There were two main allegations made against the company that were of accounting and market manipulation. This resulted in a massive sell-off of Adani Group shares. However, the Adani group executives had denied the allegations and claims made. The Adani Group responded that the management of the group complies with all the laws of corporate governance and it maintains the highest standard of compliance. 

Public company 

Appointment of Directors: Section 149 of the Companies Act, 2013, states regarding the appointment of directors in the company, which specifies that the public company must have:

• A minimum of three directors and a maximum of 15 directors. 
• Further, for public companies, there must be at least one female director. 
• Additionally, listed public companies must have at least one-third of the total directors who are independent. The central government may prescribe the minimum number of independent directors in public companies.

Contract of Employment with Directors: Section 190 of the Companies Act, 2013, prescribes the contract of employment with managing or whole-time directions, which mentions that the contract must be as per the following terms:

• There must be a written contract about this, and a copy of the same must be present at the registered office.
• This copy of the contract must be available for free to all members of the company. 
• Additionally, failure to do the same shall result in a penalty of Rs. 25000, and the liable officer shall get a penalty of Rs. 5000.

Quorum of Annual General Meeting: The quorum of the AGM in the case of a public company can be formed on the following basis: 

• If the company’s members are within one thousand, the quorum must be five. 
• If the company’s members are more than one thousand and within five thousand, the quorum must be of fifteen members present. 
• If the company’s members are more than five thousand, the quorum must be thirty. 

Private company 

Appointment of Directors: Section 149 of the Companies Act, 2013, also prescribes that a private company must have a minimum of two directors and a maximum of 15 directors.

Contract of Employment with Directors: Section 190 of the Companies Act, 2013, shall not be applied to private companies.

Quorum of Annual General Meeting: In the quorum of an AGM, in the case of a private company, the mere presence of two members in the meeting forms the quorum for the AGM. 

Disclosure requirements of public and private company

To maintain transparency and fairness regarding the company’s financial position with the public and investors, certain disclosures are to be made by the company. This disclosure provides a clear idea about the company’s funds and decisions and keeps a check on the company’s gains and updates. 

Public company 

Financial Information: a public company must disclose its balance sheet, income statements and other accounting reports. This information has to be submitted to the Ministry of Corporate Affairs after getting it verified by an external auditor. 

As per  Regulation 34 of the SEBI (listing obligations and disclosure requirements) Regulations 2015, there are certain disclosures to be made, which are as follows: 

• The company shall disclose the financial audit statement, which includes the balance sheet, profit and loss accounts, etc. 
• Directors report 
• Management discussions and reports 
• Cash flow statement. 

The rules of SEBI ensure that the general public is aware of the company’s financial position and that transparency is maintained. 

Private company 

• As per the new amendments, which were applicable from 2022, certain obligations arose for the company to disclose financial statements, including those of the promoters, shareholders, debtors, and creditors. 
• Private companies must even disclose the payment cycle for bills payable to micro, small and medium-sized enterprises. 
• Each information regarding the shares and meetings in the company must be updated on the website of the company. 
• There are lists of such disclosures to be made by private companies to people related to the company, unlike public companies. 

Difference between public and private company : a tabular representation

Point of Difference between Public Company and Private Company	Public Company	Private Company
Meaning	Public companies are those whose shares are listed on the stock exchange, and anyone buying the shares becomes a part of the company’s ownership.	Private companies have a limited number of members and certain restrictions on the transferability of their shares.
Definition	The definition is mentioned in Section 2 (71) of the Companies Act, 2013.	The definition is mentioned in Section 2(68) of the Companies Act, 2013.
Minimum members Required	The public company must have at least 7 members.	The private company must have at least two members.
Maximum members	There can be unlimited members in a public company.	There can be a maximum of 200 members in a private company.
Ownership	The ownership is divided among the general public.	The ownership is vested among the founders and investors.
Directors	A minimum of three directors are required in a public company.	A minimum of two directors are required in a private company.
Independent Director	At least one-third of the members must be Independent Directors	There is no such requirement in a private company.
Contract with Directors	It is mandatory to have a contract between managing directors and whole-time directors	It is optional.
Issue of securities	The public company can issue its securities by Prospectus/ right of issue/ private placement.	The private company can issue its security by right of issue/private placement.
Transferability of Shares	The shares of the public company are freely transferable	The shares of the private company have restrictions in  transfer of shares.
Liquidity of funds	It is easier for the investor to get their money back.	It is comparatively difficult.
Prospectus	The public company can issue a prospectus.	The private company is prohibited from issuing a prospectus.
Suffix/Prefix	The word “Public Limited” must be added at the end	The word “Private Limited” must be added at the end
Articles of Associations	Must be approved by a special resolution.	Must be approved by all members.
Quorum of Meetings	If the company’s members are within one thousand, the quorum must be five. If the company’s members are more than one thousand and within five thousand, the quorum must be of fifteen members present. If the company’s members are more than five thousand, the quorum must be thirty.	Two members must be present in the meeting.
Disclosure requirements	Public companies need to disclose their financial conditions to the public.	Private companies need not make their financial disclosures publicly. It may provide these disclosures to its members and investors.

Conclusion

Corporate governance in India has significantly changed in recent years. These legal frameworks have improved regulatory compliance, established regulatory bodies, helped new businesses grow, and made the system transparent. However, this corporate system is complex and challenging. The growth and rise of the corporate sector bring immense opportunities and employment to the country’s people.  

It is extremely essential to decide the appropriate nature of a company based on the nature of the business and its scalability. The incorporation of the company must be done by filing the necessary documents and details to avail of various benefits under the Companies Act, 2013. Knowing the difference between both types of companies might help you make the right choice. 

However, both public and private companies provide different advantages and disadvantages concerning capital accessibility, investors’ liquidity, and the management of the companies. Both forms of companies must be as per the regulatory obligations under the law.  

Note: This article is based on the current laws of the corporate world. Readers are encouraged to research and explore recent company law developments. 

Frequently Asked Questions (FAQs)

What are the four main differences between a private and public company?

The four major differences between  private and public companies are as follows: 

• In public companies, the shares of the companies are listed on the recognised stock exchange and are freely transferable. Public companies are allowed to invite the general public to subscribe to their shares. 

Whereas, private companies are not listed in the stock exchange and only the members and investors are the members of the company. The transferability of shares in private companies is restrictive. Private companies are not allowed to invite the general public to subscribe to their shares. 

• In public companies, the minimum required number of members is 7 and there is no limit for the maximum number of members. 

In private companies, the minimum required number of members is 2 and a maximum of 200. However, the one-person company is the exception. 

• In public companies, the financial statements and the information regarding the companies have to be disclosed publicly. This reduces the confidentiality of the company. 

In private companies, the statements and information regarding the company have to be shared with only the shareholders and the owners of the company. It maintains a high level of confidentiality. 

• In public companies, there must be at least 3 directors and 2/3rd of directors must retire by rotation. Additionally, 1/3rd of the directors must be independent directors. 

In private companies, a minimum of 2 directors are required and no compulsion is placed for retirement or independent directors.  

Can a private company have only one shareholder? 

There can be One Person Company where the single shareholder shall have total shareholding, despite only one person as a member, all the rules and regulations applied to the private companies shall be applicable in the one person company also. However, once the company crosses Rupees 2 Crores turnover or 50 lakhs capital, it has to be converted into a private company. This kind of company is defined under Section 2(62) of the Companies Act, 2013 as One Person Company. Herein the single person can act as the director and shareholder. 

Can a company have both private and public shares? 

Public shares are the shares which are freely traded on the stock exchange. These can be acquired by the issued IPO of the public company. On the other hand, private shares are the shares of a private company, which are generally held by the founders, investors or venture capitalists. 

Herein the public company’s shares are listed on the stock exchange and cannot hold any private shares. Where Else, the private company under Section 2(68) of the Companies Act, 2013, is completely restricted from issuing shares to the general public. It strictly does not allow a private company to offer its security to the public at large. The private company in order to have a public share, needs to turn itself into a public company. The private company may issue an IPO for turning into a public company. 

What happens when a public company goes private? 

At the time when a public company decides to turn itself into a private company, or goes private. The company withdraws its shares from the stock market. Now, the general public or investors cannot buy or sell the company’s share from the market. The public company has to undergo many changes in order to turn itself into a private company. The capital structure and the management team shall have major changes. However, the company shall enjoy the benefits of non-disclosure of its financial and operation information. It is mandatory that the company shall be free from any pending inquiry or investigation. In cases where the public company is under any such inquiry or investigation, it is barred from converting itself into a private company for that period of time. 

The public company needs to undergo the following process: 

• The public company has to pass a resolution in the Extra- Ordinary General Meeting of the company. 
• The company has to reduce its number of members to under 200 as per the rules for private companies. 
• The company has to clear its debts from the public and refund or repay the funds to the public. 
• The company shall be delisted from the stock market and shall convert its name from “public limited” to “private limited”.
• The necessary changes shall be in the Articles of Association and Memorandum of Association. 

This conversion of a public company into a private company is dealt with in Section 13, Section 14 and Section 18 of the Companies Act, 2013. Additionally, the Companies Incorporation (Fourth Amendment) Rules,2014 provides the complete process for the conversion of a public company to a private company. 

How can a private company become a public company? 

For the purpose of converting a private company into a public company, the following steps are to be followed:

• The company shall hold a Board Meeting and pass the resolution for converting and alternating the Articles of Association and Memorandum of Association. 
• As per Section 101 of the Companies Act, 2013, the date has to be decided from the Extraordinary General Meeting (EGM), and notice for the same has to be sent. A special resolution has to be passed for the conversion and alternating of the Articles of Association and Memorandum of Association. 
• The company shall apply for the conversion to the Registrar of Companies. 
• After the completion of the process with the Registrar of Companies, the company shall receive a new Certificate of Incorporation for being a public company. 

Now the company can avail the benefits of being a public company as per the Companies s Company shall issue its IPO and list its share in the stock market.

Who owns a private company? 

The ownership of a private company vests generally with a small group of people, who either are the founders or investors. These include the family members, sole proprietors in the case of the One Person Company, and a few private investors. 

Usually, in the initial stage of business, the ownership of the private company is with the founders and its family members, gradually as the business grows private investors invest their money in the business against which they acquire some share in ownership. These investors can be venture capitalists, angel investors or even private firms. 

Private companies may also give some part of their shares to their employees to maintain their motivation and earn their loyalty towards the company’s growth. 

Which are the large private companies in India? 

Many of the Indian private companies have played a major role in shaping the Indian economy and reforms in the country. Below listed are the few large private companies in India: 

Reliance Industries Limited, which is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) of India, Reliance with a value of Rs 15.6 lakh crore (as of October 2023). 

It is followed by Tata Consultancy Services which offers different services including banking, healthcare, etc. Tata Consultancy Services is valued at Rs 12.4 lakh crore followed by HDFC Bank with Rs 11.3 lakh crore (as of 13 Feb 2024). 

Can a subsidiary of a public company be private?

Yes, such a company is deemed to be a public company. A subsidiary company of a public company which is private, shall continue to be a private company as per the company’s articles of association; however, such a company has to follow the rules and regulations of a public company. 

Under the Section 2(71) of the Companies Act, 2013, prescribes that a private company which is a subsidiary company of a public company shall be termed as deemed to be a public company. However, such a company may continue using its name as a private company because there is no change in the articles of association and its constitutional properties. 

Such companies are not allowed to grant loans or buy and sell securities to the directors or any related parties. Due to the acquired interest from the public company, it does not get any privileges of being a private company. However, there can be a maximum of 200 members in the company.

What is a prospectus in a public company? 

A public company issues a prospectus at the time when it is inviting the public to invest in the company by way of buying the company’s shares. The prospectus of the company contains all the important information and details of the company. Through prospectus, a public company discloses its financial information to the public. It provides all the necessary information about the company, its objective is to let the public know about the company and make the decision to invest. Investors can make a prompt decision after knowing about the company through the prospectus. It creates transparency between the company and the public. 

Hence, a prospectus can be called to be an invitation by a public company to the investors to buy its securities. Once a public company issues its prospectus, the individuals willing to invest in the company may make offers to buy its securities. Prospectus is prescribed under Section 2(70) of the Companies Act, 2013, which says that any document issued by the company concerning section 32 or section 31 of the Companies Act, 2013, for the purpose of inviting offers from the public to subscribe to its securities is called a prospectus. 

What is the procedure for the appointment of directors in public and private companies? 

Appointment of directors in public and private companies is extremely important. The appointment of a director in a public company can take place in three ways: 

1. General Meeting: The director can be appointed by passing a resolution in the general meeting of the company. The notice of such a meeting must be served at least seven days before the meeting. The Board of Directors passes the resolution for the appointment of a director. Then after the resolution is passed in the general meeting. 
2. Special Resolution: When the number of directors exceeds the limit of 15 members, the appointment has to be made through a special resolution. 
3. Appointment of directors may take place based on the recommendations made by the current directors on the board. 

In private companies, the appointment of directors takes place as mentioned in the Articles of Association. The company shall mention all the requirements and procedures which must be followed for the appointment of directors in its articles of association however, where there is nothing mentioned for the procedure for appointment of directors, the shareholders have the right to appoint the directors.

References

• https://www.pwc.in/assets/pdfs/publications/2013/companies-act-2013-key-highlights-and-analysis.pdf 
• Comparison b/w a Private & Public Ltd Company under CA, 2013 (taxguru.in)
• Incorporation of a Company: Steps Involved Under the Companies Act (toppr.com)
• Modes of closing a business – Series IV: Voluntary Winding-up | NovoJuris
• Kinds of Company – iPleaders
• Difference between Private and Public Company – IndiaFilings
• Understanding the obligation on shareholders & regulated companies to disclose information related to beneficial shareholders | Webber Wentzel 
• https://www.sebi.gov.in/legal/regulations/jul-2022/securities-and-exchange-board-of-india-listing-obligations-and-disclosure-requirements-regulations-2015-last-amended-on-july-25-2022-_61405.html
• https://ca2013.com/149-company-to-have-board-of-directors/
• https://corporatelawreporter.com/companies_act/section-190-of-companies-act-2013-contract-of-employment-with-managing-or-whole-time-directors/