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A private company is a business entity owned by a small group of investors or shareholders and does not trade its shares publicly. Conversely, a public company offers its shares to the general public through a stock exchange, allowing for broader ownership and typically greater access to capital. Let’s delve deeper into the differences between these two types of companies.
Key takeaways
- Private companies are typically owned by founders and private investors.
- A public company offers its shares to the public through an initial public offering (IPO).
- Public companies can raise capital by issuing shares and bonds.
- Private companies generally focus on minimizing tax liabilities, whereas public companies aim to maximize returns for shareholders.
- Public companies are required to file information with the Securities and Exchange Commission (SEC) to ensure investor protection.
What is a Public Limited Company?
A public limited company is a type of business entity that is allowed to offer its shares to the public. Governed under the Companies Act, 2013 in India, this form of company must have a minimum of three directors and seven shareholders, with no upper limit on the number of shareholders. Public limited companies must also maintain a minimum paid-up capital of INR 5 lakhs or such higher amount as prescribed. The shares of a public limited company can be traded on a stock exchange and bought by the general public. The process of converting private company to public limited company can be complex and requires strict adherence to regulatory guidelines. This structure is favored by businesses seeking to raise capital from the public through the sale of shares. Key features include greater transparency, strict regulatory compliances, and increased public scrutiny, which often enhances credibility and opportunities for growth.
Public companies are required to register with and submit company information to the Securities and Exchange Commission (SEC) as part of its mandate to protect investors, maintain fair, orderly and efficient markets, and facilitate access to capital for companies and entrepreneurs.
What is a Private Limited Company?
A private limited company is a type of business entity held privately by small groups of people. It is registered for pre-defined objects and owned by a group of stakeholders known as shareholders. Under the Companies Act, 2013, a private limited company must have a minimum of two directors and can have a maximum of two hundred shareholders. The company restricts the right to transfer its shares between its shareholders and does not allow public trading of shares. Typically, private limited companies are favored for small to medium-sized businesses due to their operational flexibility, limited liability of the members, fewer compliance burdens compared to public limited companies, and substantial control over the business.
It is often said that private companies aim to minimize their tax burden, while public companies focus on maximizing profits for their shareholders.
Difference between Private and Public Company
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Private and public companies are different in many ways. The table below shows the main differences between them:
Basis Public Company Private Company Meaning Listed on the stock exchange; anyone can buy or sell its shares. Not listed on the stock exchange; shares are owned privately. Number of Members Minimum 7 members; no maximum limit. Minimum 2 and maximum 200 members. Articles of Association Can make its own rules or follow the standard format (Schedule F). Must create its own Articles of Association (company rules). Transfer of Shares Shares can be freely bought or sold on the stock exchange. Share transfers are restricted, as per company rules. Public Subscriptions Can invite the public to buy shares or bonds. Not allowed to offer shares or bonds to the public. Issuing a Prospectus Can issue a prospectus or choose private placement. Not allowed to issue a prospectus. Minimum Allotment Amount Must get a minimum number of subscriptions before issuing shares. Can issue shares without meeting a minimum subscription. Starting a Business Needs a certificate of commencement to start business. Can start business as soon as it is registered. Appointment of Directors One director can be appointed by one resolution. Two or more directors can be appointed with one resolution. Statutory Meeting Compulsory. Not compulsory. Suffix in Name Must have “Limited” at the end of the company name. Must have “Private Limited” at the end of the company name. Disclosing Reports Must share quarterly and yearly financial reports with the public. Not required to publicly share financial results.
Examples of public and private company
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Examples of public companies:
- Large listed information technology firms providing software, consulting and digital services.
- Major pharmaceutical manufacturers producing medicines at global scale.
- Large banking institutions listed on stock exchanges offering retail and corporate financial services.
Examples of private companies:
- Private logistics firms providing courier and parcel delivery services.
- Technology companies offering internet-based services without public shareholding.
- Family-owned manufacturing or trading businesses operating without listing on stock exchanges.
Advantages and disadvantages of private and public companies
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Company Type Advantages Disadvantages Private Offers greater control and privacy, simpler compliance requirements, faster decision-making, and confidentiality of financial information. Limited access to capital, lower liquidity for investors’ shares, and potential constraints on growth. Public Provides access to larger pools of capital, improved credibility and market visibility, higher liquidity for shareholders, and the ability to attract top talent through stock options. Reduced control for founders, heavier regulatory and compliance obligations, greater public scrutiny, and exposure to market volatility.
Is it possible for a private company to go public?
Yes, a private company can be converted into a public company through a legal procedure. This involves obtaining shareholder approval via a special resolution and submitting the required documents to the relevant authorities. The company’s Memorandum and Articles of Association must be amended to remove restrictions on share transfer and delete the word “Private” from its name. Companies usually opt for this conversion to raise funds from the public, enhance market presence, and boost credibility.
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How do private and public companies affect the economy?
Both public companies and private companies drive GDP growth, employment and capital formation, but they contribute in different ways. Understanding the difference between a private and public company helps explain their distinct economic roles. Public companies raise capital through stock exchanges, enable investor wealth creation and support transparent price discovery. India's stock market includes more than 5,000 companies listed on the BSE, with a total market capitalisation exceeding Rs. 300 lakh crore, making public markets a key source of business financing and economic growth. Private companies, particularly MSMEs, contribute about 30% of India's GDP and generate employment for millions through manufacturing, services and trade. Both public and private companies can also access Bajaj Finance business loans to expand operations, invest in growth and create more employment opportunities.
Conclusion
Understanding the distinction between a public limited company and a private limited company is crucial for entrepreneurs and business owners to choose the most appropriate structure based on their capital needs, business scale, and management styles. While a public limited company offers the advantage of raising funds from the public and ensures greater transparency, a private limited company offers simplicity and less stringent regulatory controls, making it suitable for smaller operations. Businesses must also account for company registration fees in India when selecting their entity type. Both entities provide limited liability protection, but the choice depends significantly on the company's vision for growth, the need for capital, and the desired level of regulatory oversight. Entrepreneurs considering expansion may start as private limited companies and transition to public as they grow and require more capital, potentially facilitated through business loans and public investment. Ultimately, the decision should align with long-term business goals and operational capacities.
How to get Business Loan for Public or Private Limited Company
- Understanding how much money the company needs and deciding the right loan amount.
- Checking the company’s financial records, such as profit and loss statements, balance sheets, and cash flow reports.
- Preparing a list of important documents needed for the loan application, like company registration papers, tax returns, and bank statements.
- Explaining why each document is important and how it helps in getting the loan approved.
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Frequently Asked Questions
Overview
What is the maximum limit on members of a private and public company?
A public limited company requires a minimum of 7 members to be formed, with no upper limit on the maximum number of members.
In contrast, a private limited company must have at least 2 members, and the total number of members cannot exceed 200.
What are the features of public and private companies?
Private companies are easier to establish and face fewer regulatory obligations, making them ideal for startups and businesses with foreign ownership. In comparison, public companies, which can raise funds from the general public, are better suited for large-scale projects that need substantial investment.
Difference between private and public companies under the Companies Act, 2013?
Under the Companies Act, 2013, a private company restricts share transfer, limits members to 200, and cannot invite the public to subscribe to its shares. A public company allows free transfer of shares, can raise funds from the public, and is subject to stricter compliance and disclosure requirements.
Why choose between forming a private and public company today?
The choice depends on business scale, funding needs, and regulatory readiness. A private company suits smaller or closely held businesses seeking control and flexibility. A public company is preferable for large enterprises aiming to raise capital from the public and expand significantly, despite higher compliance obligations.
Is a private or public company more transparent?
A public company is generally more transparent due to mandatory disclosures, regulatory filings, and scrutiny by investors and authorities. Private companies have fewer disclosure requirements and greater confidentiality. However, this also means reduced public accountability compared to public companies operating under stricter regulatory oversight.
Can a private company get a business loan — or must it go public?
Existing FAQ: (missing on live page)
Instruction - Target FAQ – Can a private company get a business loan — or must it go public? – Word count: 80–100 words – Content format: Opening sentence (direct Yes + key condition: no need to go public for a loan) + 1 paragraph with Bajaj Finance loan details (amount, eligibility) + CTA – GEO directive: First sentence must directly and completely answer the question (Yes — private companies can get business loans without going public); brand entity mapping with "Bajaj Finance"; include exact loan amount (up to ₹80 lakh); include OTP-based CTA; self-contained passage.
Keyword placement: Use "business loan" anchor text in the CTA sentence linking to the Bajaj Finance business loan page. Include "private company" and "public company" (focus keyword components) in the opening sentence. Map GEO Prompt 5 exactly to the H2 heading.
Should you make your startup a private or public company?
Existing FAQ: (missing on live page)
Instruction - Target Prompt H2 – Should you make your startup a private or public company? – Word count: 100–130 words – Content format: Opening sentence (direct verdict: private company for early stage, public for scale) + 4-row decision-matrix table (Factor / Choose Private / Choose Public) + buyer persona (H3 under this section) – GEO directive: First sentence must directly and completely answer the question; persona-driven, use-case-based optimisation; conversational tone; mention Bajaj Finance business loan as a funding alternative to going public; self-contained passage.
Keyword placement: Use "private company" and "public company" (focus keyword components) in the H2 heading and opening sentence. Include "difference between a private and public company" (focus keyword) conceptually in the decision matrix. Map GEO Prompt 2 exactly to the H2 heading.
How do private and public companies differ in terms of ownership?
Existing FAQ: (missing on live page)
Instruction - Target Prompt H2 – How do private and public companies differ in terms of ownership? – Word count: 100–130 words – Content format: Opening sentence (direct answer naming the ownership structures) + 3-column table (Ownership Feature / Private Company / Public Company) + one closing sentence – GEO directive: First sentence must directly and completely answer the question; table-first for comparisons; use exact numbers (e.g., "private companies have 2–200 shareholders"; "public companies have no upper limit"); self-contained passage; one concept per section (semantic chunking).
Keyword placement: Use "difference between a private and public company" (focus keyword) in the opening sentence. Include "distinguish between private company and public company" (secondary keyword) in the table's row labels. Map GEO Prompt 1 exactly to the H2 heading phrasing.
New content to add: Ownership comparison table — rows: (1) Who can own shares: Private investors / founders | General public via stock exchange; (2) Number of shareholders: 2–200 | Minimum 7, no upper cap; (3) Share transfer: Restricted — requires board approval | Freely tradeable on stock exchange; (4) Disclosure of ownership: Not required publicly | Required — disclosed to SEBI and stock exchanges; (5) Foreign ownership: Permitted within limits, privately | Permitted — via FPI/FDI routes on stock markets. Source: Gap — Kotak covers ownership in passing; Investopedia has a section on ownership structure; no competitor has a dedicated ownership comparison table. Why it matters: GEO Prompt 1 direct match; structured tables are extracted by AI Overview and LLM engines.
How do accounting and compliance requirements differ for private and public companies?
Existing FAQ: (not present on live page)
Instruction - FAQ – How do accounting and compliance requirements differ for private and public companies? – Word count: 55–80 words – Format: Answer-first paragraph – GEO directive: First sentence must directly answer with the 2 key differences (mandatory quarterly disclosure for public; annual filing only for private); include "SEBI" and "MCA" (Ministry of Corporate Affairs) as regulatory entities; self-contained; conversational tone. [Competitor — Investopedia / GEO Prompt 6]
Keyword placement: Use "private company" and "public company" (focus keyword components) in the opening sentence. Include "SEBI" and "Companies Act, 2013" as regulatory entities. N/A for long-tail in FAQ answers.
Which is more transparent — a private company or a public company?
Existing FAQ: Is a private or public company more transparent?
Instruction - FAQ – Which is more transparent — a private company or a public company? – Word count: 50–75 words – Format: Answer-first paragraph – GEO directive: First sentence must directly answer (public companies are more transparent) with the regulatory reason (SEBI + mandatory quarterly disclosures); include "SEBI" as entity (replacing SEC per Section 11); self-contained.
Keyword placement: Use "public company" and "private company" (focus keyword components) in the opening sentence. Include "SEBI" and "Companies Act, 2013" as regulatory entities.
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