Difference between Public and Private Company

14-Jan-2026

Companies Act, 2013

Introduction

The Companies Act, 2013 classifies companies into public and private categories, each operating under distinct legal frameworks with significant implications for operations, capital raising, and regulatory compliance.

What is a Public Company?

Definition: Section 2(71) of the Companies Act, 2013 - A company which is not a private company and has minimum paid-up share capital of Rs. 5 lakh or higher.
Key Characteristics:
- Separate legal identity from shareholders.
- Shares freely transferable and traded on stock exchanges.
- Limited liability for shareholders.
- Can issue prospectus to invite public investment.
- Must maintain high transparency and disclosure standards.

What is a Private Company?

Definition: Section 2(68) of the Companies Act, 2013 - A company with minimum paid-up capital of Rs. 1 lakh, restrictions on share transfer, maximum 200 members, and prohibition on public invitation for securities.
Key Characteristics:
- Separate legal identity.
- Restrictive share transfer requiring board approval.
- Liability limited by shares, guarantee, or unlimited.
- Maintains confidentiality of business information.
- Ownership confined to select individuals.

Difference between Public Company & Private Company

Point of Difference	Public Company	Private Company
Legal Definition	Section 2(71) of the Companies Act, 2013	Section 2(68) of the Companies Act, 2013
Minimum Members	7 members	2 members
Maximum Members	Unlimited	200 members (excluding employees)
Minimum Directors	3 directors	2 directors
Independent Directors	At least 1/3rd of the Board must be independent (for listed public companies)	Not mandatory
Female Director	Mandatory (for prescribed classes)	Not mandatory
Name Suffix	“Limited”	“Private Limited”
Share Transferability	Shares are freely transferable	Restricted by Articles of Association
Public Invitation	Can invite public to subscribe to shares	Cannot invite public to subscribe
Issue of Prospectus	Permitted	Prohibited
Capital Raising	IPO, FPO, Rights Issue, Bonds	Private placement, Rights Issue, Private investors
Amendment of Articles	Special resolution required	Consent of all members required
Contract with Directors	Mandatory under Section 190	Not mandatory
AGM Quorum	5 / 15 / 30 members (depending on membership strength)	2 members
Financial Disclosure	Mandatory public disclosure	Limited disclosure to members
SEBI Compliance	Applicable to listed public companies	Not applicable
Regulatory Burden	High	Comparatively low
Liquidity of Shares	High (listed shares traded on stock exchange)	Low (restricted transfer)
Confidentiality	Low due to public disclosures	High—information remains private
Credibility	Higher market credibility	Limited mainly to stakeholders

Conclusion

The distinction between public and private companies is fundamental in corporate law, significantly impacting operations, regulatory compliance, capital raising, and governance. Public companies offer enhanced capital access, share liquidity, and market credibility but face extensive regulatory burdens and loss of confidentiality. Private companies enjoy operational flexibility, confidentiality, and control but have limited capital access and share liquidity. The choice depends on business size, growth aspirations, capital requirements, ownership preferences, and regulatory compliance willingness. The Companies Act, 2013 provides comprehensive frameworks accommodating both structures while ensuring transparency, accountability, and stakeholder protection in India's corporate ecosystem.