Type of Company : Public or Private

The main differences between the two categories relate to the provisions of the Companies Act that are not applicable to private companies. These include:

• Provisions as to the type of share capital, further issue of share capital, voting rights, issue of shares with disproportionate rights, etc.
• Provisions restricting the company from giving financial assistance to subscribe to its own shares.
• Provisions restricting the amount of managerial remuneration paid and certain other provisions relating to managerial personnel.
• Provisions restricting the powers of the Board of Directors.
• Provisions restricting loans to directors.
• Private companies are deemed to be converted into public companies in the following circumstances:
  • When not less than 25% of the paid up capital of the company is held by one or more corporate bodies.
  • When the company holds 25% of the paid up share capital of a public company.
  • When the average annual turnover of the company exceeds Rs.100 million.
  • When the company accepts deposits from the public.
• On becoming a deemed public company, many provisions of the Companies Act, 1956 in respect of which the company had exemption as a private company would become applicable.

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Private Companies                         Public Ltd. Companies

Restriction on transfer of          Shares are normally freely
shares                              transferable

Number of members                   Minimum 7 members
between 2 and 50                    required

Prohibits invitation to the         No restriction on inviting
public for capital issues           public for capital issues

Taxation rates are                  Taxation rates are normally
higher                              lower

Many provisions of the              Wide coverage of Companies
Companies Act are not               Act
applicable
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Centre for Monitoring Indian Economy, Bombay
Contact Addresses for More Information
Last updated: May 1995.