CORPORATE LAW

ASSIGNMENT
Subject code-LLB 305
Assignment topic-Types of Companies in
India: Private Limited vs.
Public Limited

DEPARTMENT OF LAW
SUBMITTED TO: SUBMITTED BY:
Ms. Ankita Tiwari Goranshi Gupta
Assisstant Professor, TIPS BALLB 2021-26 (Sem 5)
Enrollment no.-01727903821
 PRIVATE LIMITED COMPANY
MEANING
 Section 2 (68) of The Companies Act, 2013 defines a private limited company as a
separate entity that is held privately and provides limited liability. It does not freely
transfer its shares to the public like other public companies. In a private limited company,
all business profits and liabilities belong to the company itself and stakeholders may not
be responsible for debts incurred by the company.1
 “A Company having a minimum paid-up share capital as may be prescribed, and which
by its articles,—
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two
hundred;
(iii) prohibits any invitation to the public to subscribe for any securities of the
company.”2
 Private companies have the upper hand over public companies with respect to investment
in long-term strategies, keeping the values of their shares and financial figures discreet,
freedom, and flexibility of operations

CHARACTERISTICS
 Membership: Like any other company, a minimum of two shareholders are required in
order to start such a company. But since it remains a small entity, there is also a
maximum cap on the number of members fixed at 200. There is also a requirement of
two directors to run the company.

 Limited liability structure: In a private limited company, the liability of each member
or shareholder is limited. Therefore, even in the case of loss under any circumstances,
the shareholders are liable to sell their own assets for repayment. However, the personal
and individual assets of the shareholders are not at risk.

 Separate legal entity: This is a separate legal entity and continues in perpetual
succession. This means that even if all the members die, or the company becomes
insolvent or bankrupt, the company still exists in the eyes of the law. The life of the
company will be perpetual, not affected by the lives of its shareholders or members
unless dissolved by way of resolution.

 Minimum paid-up capital: A private limited company requires to have and maintain a
minimum paid-up capital of Rs. 1 lakh. It could go higher, as prescribed by MCA from
time to time

1
https://in.indeed.com/career-advice/career-development/what-is-private-limited-company
2
https://razorpay.com/learn/what-is-a-private-limited-company
TYPES OF PRIVATE LIMITED COMPANIES
1) Private limited company by shares
A private company limited by shares is limited in capital based on the numbers of
shareholders who are owed money on their shares. For these companies, the liability of
shareholders is limited by the MOA (memorandum of Association) to the number of their
shares or the amount which remains unpaid. The shareholders are not liable to pay more
than their share capital invested in the company.

2) Private limited company by guarantee

In a private limited company limited by guarantee, the liability of the individual
shareholder is limited to the amount he guarantees in the MOA. Therefore, they can be
liable only up to the amount that they have guaranteed. In addition, they may invoke this
guarantee only in case the company is permanently shut down.

3) Unlimited companies
An unlimited company is a separate legal entity. Unlimited corporations are businesses
that have no restrictions on the liability of their members. Each member's liability may
extend over the entire company's debts. It means members' personal assets can pay off
debts incurred by the company.

ESSENTIAL DOCUMENTS REQUIRED FOR SETTING UP A

PRIVATE LIMITED COMPANY
a) Memorandum of association: It talks about the purpose of setting up a business, the
nature of business, the objective of a company and the capital clause. It is a corporate
document, which is also called a charter of the company and defines a company's
relationships with shareholders and specifies the company's goals.

b) Article of association: This document talks about the internal operating system of the
company. It explains the managing process, duties and responsibilities of each member,
dividend policy, shareholder meetings and appointment of directors.

c) Certificate of incorporation: It is the certificate or license that the directors receive after
submitting all required documents for registration. It is the primary document of
authentication of the company and the Registrar of Companies(ROC) issues this
document in India.

d) Other documents: Other documents include ID proof (PAN card, Aadhaar card), address
proof (ration card, voter id), rental agreement, NOC from the property owner and a copy
of the sale deed for the owned property for all directors and shareholders of the company.

ADVANTAGES
a) Opportunity for acquiring foreign investment
Foreign investors trust private limited companies more because of strict compliances, data
availability on the site and the fact that they follow the ROC norms. In addition, a foreign
 entrepreneur can become a director of a private limited company, provided there is at
least one director living in India. This makes foreign investors keener to invest in private
limited companies rather than any other type of business entity.

b) Separate legal entity

Private limited companies are separate and independent and changes or replacements in
shareholders or directors do not affect them. Any private limited company is established
under a legal constitution. It means even if all members of the company leave or the
company goes bankrupt, it still exists according to the law.

c) Can own properties

A private limited company can own any type of movable or immovable property. Assets
and liabilities of the company are typically the responsibility of the company. In case of
dissolution of the company, its liabilities are discharged in a specified sequence to the
creditors, which reduces the individual liability of the shareholders.

d) Greater borrowing capacity

A private limited company can enjoy multiple avenues for borrowing funds. Banking and
financial institutions often prefer to offer financial assistance to private limited
companies. They have greater confidence in this type of business entity because of the
transparency, compliance and partial data availability on government websites.

e) Limited liability: In a private limited company, there is a limited liability, which means
the members of the company are not at the risk of losing their private assets. If a company
fails, the shareholders are liable to sell their assets for payment

f) Less number of shareholders: Unlike a public company that requires seven

shareholders, a private limited company can be started with just two shareholders

DISADVANTAGES
a) Number of Members
The members of a private limited company are limited. It can only have a maximum of
200 members, while a public limited company can have unlimited members.

b) Restriction on Transfer of Shares

In a private limited company, the transfer of shares is not allowed under its AOA, and
these shares cannot be listed on the stock exchanges.

c) Cannot Issue Prospectus

A private limited company cannot issue a prospectus inviting the public to subscribe to its
shares. The shares of the company cannot be listed on the stock exchange
 PUBLIC LIMITED COMPANY
MEANING
 Public Limited Company is governed by the Companies Act of 2013, which defines it as
a company which is not a “private company”, “has a minimum amount of capital as
prescribed” and “has a minimum of seven shareholders”. The companies Act regulates
the working of Public Limited Company. A Public Limited Company offers shares to
the general public and has limited liability. Its stock can be acquired by anyone, either
through IPO i.e. initial public offering or via stock market. It is strictly regulated and is
required to publish its true financial reports to the shareholders.3
 Public Limited Company in India can be either registered or unregistered on the share
market. Its completely on to them whether they want to register or not. The listing of the
company on the stock market they are ordered to showcase their financial year reports
and illustrate the economic condition to enrich investor and stake holders belief and also
gain public trust.
 The lifespan of the shareholder in a publicly held company doesn’t impact how long it
will continue to be a firm. These businesses can be used to raise capital but also have
increased regulation.
 Few examples of Public Limited Company are: Indian Oil Corporation Ltd, Bharat
Petroleum Corporation Ltd, State Bank of India, Hindustan Petroleum Corporation
Ltd ,Oil and Natural Gas Corporation Ltd.

CHARACTERISTICS
1) Separate legal entity
A Public Company is a business entity that has a separate identity from its
members/shareholders.
2) Easy Transferability
A shareholder of a public limited company can easily transfer its shares to the board
of the shareholders/directors is limited to the extent of the shares owned by them. In
the event of any losses or debts, the shareholders are not liable
3) Paid-up Capital
For a public company to begin its operations, the minimum paid up capital required is
Rs 5,00,000.
4) Name
The word “LTD”, which will be added to the end of any public company’s name, will
be included in the name.
5) Directors

3
https://www.redflagalert.com/articles/analysis/a-public-limited-company-plc-vs-a-private-limited-company-ltd
 The minimum number of Board Of Directors is 3, maximum of 12. They are elected
by shareholders at the Annual General Meeting. Only the Director ID Number (DIN),
issued by the Ministry of Corporate Affairs, must they possess.

6) Prospectus
A prospectus can be issued to invite the public to subscribe to its shares by registering
a public limited company. A prospectus is a statement that contains detailed
information about the company as well as the number of shares requested by the
company for an IPO or subsequent listing.
7) Borrowing capacity
Public companies have the advantage of being able to borrow money from many
sources. Public companies can issue debts (secured and unsecured) to raise money. It
can also issue preference or equity shares to the public. The company can receive
financial aid and loans from banks and other financial institutions.
8) Number of members
There must be 7 members in a Public company, there is no upper or lower limit to this
number.
9) Minimum Subscription
The minimum amount that must be received for subscriptions of shares is 90 percent
of shares in the public company. The company cannot continue to operate if they are
unable to pay the 90 percent amount.
10) Minimum subscribers
The 7 members of the Public company are the subscribers of the Memorandum of
Association of Public Company.
11) Certificate of Commencement
This is a vital document that must be obtained by the public company before starting a
business. The Certificate Of Incorporation is the last document needed for a private
company. For public companies, both the Certificate of Incorporation and Certificate
of Commencement is required.
12) Memorandum of Association
The MOA, which is an important document for the formation of a public company, is
essential. After completing the Articles of Association, a private company can begin
its business. For a public company, the Memorandum must be submitted to MCA
along with the company’s registration. Section 2(56), Companies Act 2013, defines
Memorandum. It outlines the main goals of the company, that is, the main business
the company will be involved in.

REQUIREMENTS FOR REGISTRATION OF A PUBLIC LIMITED

COMPANY
 Minimum 7 shareholders are required to form a public limited company.
 Minimum of 3 directors is required to form a public limited company.
 A minimum authorised share capital of Rs. 1 lakh is required.
  Digital Signature Certificate (DSC) of one of the directors is needed while submitting
self-attested copies of identity and address proof.
 Directors of the proposed company will need a Director Identification Number (DIN).
 The name of the company must be as per the provision of the Company Act and
Rules.
 Documents like the Memorandum of Association (MOA), Articles of Association
(AOA) and duly filled Form DIR - 12 is needed.
 Payment of the prescribed registration fees to the ROC is required.

ADVANTAGES
a) More capital
Shares are offered to the general public at large i.e. anyone can invest in a public limited
company. Hence, improves the capital of the company.
b) More attention
Being listed on a stock market ensures that mutual funds, hedge funds and other traders take
note of the business of the company. This may result in better business opportunities for the
public limited company.
c) Growth and expansion opportunities
Due to less risk, there is a perfect opportunity for growing and expanding the business by
investing in new projects from the money raised through shares.
d) Limited Liability:
Shareholders in a Public Limited Company have limited liability which means that their
personal assets are not at risk in case the company defaults.4
e) Transferability of shares
Shares in public limited company can be easily bought and sold on a stock exchange,
providing liquidity and flexibility to investors.
f) Better Access to Government Schemes
Public Limited Companies have better access to government schemes, incentives and
subsidies aimed at promoting economic growth and development.
g) Professional Management
Public Limited Companies are usually managed by board of directors with expertise in
various areas of business management.

DISADVANTAGES
a) Regulatory Compliance
Public Limited Companies are subject to increased regulatory compliance requirements,
including financial disclosure and shareholder communication. This becomes a costly affair
b) Dilution of Ownership
By issuing shares to the public the ownership of the company can become diluted which can
lead to loss of control.
c) Limited Control over share price
Public Limited Companies have limited control over their share price, which can be
influenced by the investors sentiments and market conditions.
d) Costly to go public
The process of going public can be costly and time consuming requiring significant legal
resources
PUBLIC LIMITED COMPANY
V/S
PRIVATE LIMITED COMPANY
Category Public Limited Company
A public limited company is a
Meaning joint stock company, that is
not a private company, and
the shares of which are listed
on a stock exchange.
Paid-capital The minimum paid-up capital
needed for a public limited
company is Rs. 5,00,000..
A public limited company is
entitled to accept
Subscription from the
subscriptions from the general
public
public and issue shares or
debentures to raise capital.
Directors The minimum number of
Directors in a public limited
company is 3
Private Limited company
A private company is a
closely held company that
does not have its shares listed
on any stock exchange and
cannot be openly traded.
The minimum paid-up capital
for a private company is Rs
1,00,000
A private limited company is
not allowed to have a
subscription of its shares by
the general public. This
implies that such a company
cannot issue any shares or
debentures to the general
public for raising capital at
any point
The minimum number of
Directors in a private limited
company is 2
 As per the provisions of the
Companies Act, 2013, at least
Retirement of Directors ⅔ Directors of the common
have to retire by rotation. Out
of these Directors, at least ⅓
Directors have to retire each
year
In a public limited company
Appointment of Directors
the appointment of only one
Director can be done through
a single resolution.
It can frame its own articles of
Articles of Association
association or adopt Table F.
5 members are required to
present in person when the
number of members as on the
date of the meeting is 1000 or
Quorum less. 15 members are required
to present in person when the
number of members as on the
date of the meeting is more
than 1000 but less than 5000.
A private limited company
does not have such
restrictions relating to the
retirement of Directors by
rotation.
In a private limited company,
two or more Directors can be
appointed through a single
resolution
It must frame its own articles
of association.
2 members who are
personally present at the
meeting, constitute a quorum,
irrespective of the number of
members.
 CASELAWS
1) Salomon v Salomon & Co. Ltd4
Facts of the Case
 Aaron Salomon's business was organised into a company in 1892, with his wife,
daughter, four sons, and himself as shareholders. Mr. Salomon, the company's managing
director, sold the company for 39,000 and took a 10,000 debt out of it.
 Edmund Broderip paid Mr. Salomon a 5000 advance on the security of the debentures.
Soon after, there was a drop in sales, which was followed by strike action, which
resulted in a business downturn. Because of his position and duty in the company, Mr.
Edmund sued Mr. Salomon to enforce security.
Judgement
 In this case, Mr. Salomon, the company's founder, is protected from personal obligation
to creditors because the company is a separate legal entity from its members.
 The notion of corporate personhood established by the Companies Act of 1862 was
upheld by the court. Thus, creditors of a bankrupt firm cannot sue the company's
shareholders for payment of outstanding debts.

2) Royal British Bank v Turquand5

Facts of the Case
 Mr Turquand was the insolvent Cameron's Coalbrook Steam, Coal and Swansea
and Loughor Railway Company's official manager (liquidator). It was established
in 1844 under the Joint Stock Companies Act.
 The company had issued a 2000 bond to the Royal British Bank, which
guaranteed the company's current account draws. The bond was signed by two
directors and the secretary and was under the company's seal. For non-payment of
the same, the claimants, the Royal British Bank, sued him.
 The company stated that the directors had only the ability to borrow the
company's resolution had allowed what under its registered deed of settlement (the
articles of association).
 The defendants also claimed that no resolution authorizing the issuance of the
bond had been passed, and that no bond was issued without the approval and
consent of the company's shareholders.
Judgement
 Sir Jervis was of the opinion that the Court of Queen's Bench's decision should be
affirmed. He was inclined to believe that the issue, which had been raised primarily in
this case and in that Court, did not always arise and did not require a decision.
 His impression is that the replication's resolution goes far enough to satisfy the deed
of settlement's criteria.
 According to Sir Jervis, the deed allows directors to borrow on a bond the sum or
sums of money that may be borrowed from time to time by a resolution passed at the
Company's General Meeting, and the replication of the resolution, adopted at the

4
UKHL 1, AC 22
5
6 E&B 327
 General Meeting, authorizes the directors to borrow such sums on bonds for such
periods and at such interest rates as they may deem expedient, in accordance with the
act of settlement and the Act of Parliament; however, the resolution authorizes the
directors to borrow such sum. It seemed to me to be enough, said Sir John Jervis CJ.
 If this is the case, the other point does not arise, and we do not need to determine; for
it appears to us that the plea, whether we regard it as a confession and rejection or a
unique non-est factum, does not create any obstacle to the Company's advance. He
went on to say that - we can now assume that dealings with these firms are not the
same as dealings with other partnerships, and that the parties involved must read the
statute and the settlement act. But they're not obligated to go any further. And the
party here would discover, rather than a prohibition on borrowing, permission to do so
under specified conditions in the settlement statute.
 It would have the right to infer the fact of a resolution allowing what appears to have
been properly done in the face of the document if it found that the authority might be
accomplished by a resolution.