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Kinds of Company

The document discusses the differences between private and public companies under the Companies Act. It notes that private companies have restrictions on transferring shares and prohibitions on public share subscription, while limiting membership to 50 people excluding employees. Public companies have no defined limit on membership. The key differences outlined are that private companies have simpler formation processes, a minimum of 2 and maximum of 50 members, can commence business immediately after registration, are not required to issue prospectuses, have non-freely transferable shares, require less capital, must include "Private Limited" in their name, need only 2 directors, and directors can vote on matters concerning their interests. Public companies have more complex formation, at least 7 members, need certificates to commence business, must

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27 views2 pages

Kinds of Company

The document discusses the differences between private and public companies under the Companies Act. It notes that private companies have restrictions on transferring shares and prohibitions on public share subscription, while limiting membership to 50 people excluding employees. Public companies have no defined limit on membership. The key differences outlined are that private companies have simpler formation processes, a minimum of 2 and maximum of 50 members, can commence business immediately after registration, are not required to issue prospectuses, have non-freely transferable shares, require less capital, must include "Private Limited" in their name, need only 2 directors, and directors can vote on matters concerning their interests. Public companies have more complex formation, at least 7 members, need certificates to commence business, must

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রিদুয়ানুল হক
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Kinds of Company:

The Companies Act provides for two types of Companies-Public and Private.
Private Company: As defined in Section2 (q) of th e Act, a Private Company means a
Company which by its Articles:
a) Restricts the right to transfer the share, if any, and
b) Prohibits any invitation to the public to subscribe for the shares, if any, or
debentures of the company, and
c) Limits the number of its members to 50 not including persons who are in the
employment of the company.

Public Company: There is no specific definition in companies Act, 1994 as to the


definition of public company. The Companies Act, 1994 provides-
"A Public Company means a company incorporated under the Companies Act 1994 or
under any law at any time in force before the commencement of this Act and which is
not a private company.

Difference between Public and Private Company:


1. Formation: ln case of private company the procedure for the formation is not so
complicated like a public company. On the other hand, a public company has to follow
many procedures so; the procedure for forming a public company is too much complicated
than a private company.

2. Number of members: In case of private companies, the minimum number of


members must be at least two while a public company must have at least seven. On
the same way, in case of private company the maximum number must not exceed fifty
but there is no fixed number as to maximum number for a public company

3. Commencement of business: A private company can commence its business


immediately after registration. But a public company can commence business only after
obtaining certificate of incorporation.

4. Prospectus: A private company is not required to issue prospectus or statement in lieu


of prospectus. Neither of the documents needs to be submitted to the registrar. For
raising capital or other grounds a public company is required to issue a prospect us and
submission of it to the registrar.

5. Transfer of shares: The shares of a private company are not freely transferable. But
shares of a public company are freely transferable.
6. Capital: A private company being smaller than a public limited company so, it requires
less capital. On the other hand, a public limited company being a large scale enterprise, it
requires huge capital.

7. Adding 'Limited' clause: in case of private company the words 'private limited' shall
have to be added at the end of the name. On the other hand, in case of public limited
company, only the word 'Limited' to be added.

8. Number of directors: In case of private companies there must be at least two


directors. On the other hand, in case of public limited company the number of directors
shall at least be three.

9. Right to vote: In case of private companies, if the matter concerned with the rights and
interest soft the directors, the voting right exists. That means, the directors are able to
vote in regards to their interest. But in case of public company, as a director, no director
shall vote on any contract or arrangement in which he is either directly or indirectly
concerned or interested.

10. Public subscription: A private company invites the public to purchase its shares or
debentures. Thus by this a private company can't raise capital. On the other hand a public
company may do and invite public to purchase shares or debentures.

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