While starting a business, one of the first big decisions someone can face is to choose the right structure for their business. It will be a decision that could affect everything from how to raise money to how much control they have over their business or company. Two of the most common choices from which one can pick are - Private Limited Company and Public Limited Company. But what do these two mean? And how can one decide on which will be the best pick?
In this post, we'll explain everything about Private Limited Company and Public Limited Company you need to know in very simple terms so you can understand the differences choose the right path, and feel confident about it.
What is a Private Limited Company in India?
A Private Limited Company, often read or seen abbreviated as Pvt. Ltd., is a company that is privately owned by an individual, or a group of persons. This means that its shares are not offered to the general public.
This structure is popular among startups and small to medium-sized enterprises because it offers a balance between limited liability and control.
Let’s break this down further by discussing the key features -
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Shareholders: It can have between 1 and 200 shareholders.
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Shares: The shares are not available to the general public. They are held privately by the company’s owners, and these shares cannot be freely traded or transferred without the consent of other shareholders.
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Liability: The owners have limited liability. This means that their personal assets are protected, and they are only liable for the company’s debts up to the amount they have invested.
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Size & Compliance: Typically, Pvt. Ltd. Companies are smaller than Public Companies and have fewer compliance requirements. However, they still need to follow certain regulations set by the Ministry of Corporate Affairs (MCA), such as filing annual financial statements and returns.
Advantages of Private Limited Company
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Greater control remains with the founding members or investors.
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Less regulatory burden compared to public companies.
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No pressure from the stock market and its fluctuations or public shareholders.
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A single person can own and manage the business (through an OPC).
Disadvantages of Private Limited Company
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Raising money is limited to private sources like investors.
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Shares cannot be publicly traded, making it harder to quickly raise funds.
What is a Public Limited Company in India?
A Public Limited Company (PLC) in India is a company whose shares are open to the general public. These companies are typically larger and more regulated than Pvt. Ltd. Companies. PLC can raise funds by offering shares to the public, usually through a stock exchange like the Bombay Stock Exchange (BSE) or the National Stock Exchange (NSE).
Here are the key features that define a PLC in India:
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Shareholders: It requires a minimum of 7 shareholders and has no upper limit. The shares are open to public ownership, which means anyone can buy them through the stock exchange.
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Shares: The shares are traded freely on the stock market, which allows the company to raise large amounts of capital (money) from the public.
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Liability: Just like in Pvt. Ltd. Companies, the shareholders of a PLC also have limited liability. They are only liable for the company's debts to the extent of their shareholding.
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Size & Compliance: PLCs are typically larger and have stricter regulatory requirements. They must comply with the rules set by the SEBI and regularly disclose their financial information to the public.
The best example could be, Tata Motors or Reliance Jio listed on the BSE and NSE. Anyone can buy shares and become a part-owner.
Advantages Public Limited Company
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Easier to raise large amounts of capital by issuing shares to the general public.
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Access to a wider pool of investors through the stock market.
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Higher brand visibility and credibility since the company is listed on a stock exchange.
Disadvantages Public Limited Company
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Stricter regulations and compliance requirements from SEBI and the stock exchanges.
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Business decisions are generally influenced by public shareholders and market fluctuations.
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Transparency is mandatory, as financials and other business data must be publicly disclosed.
Difference between Private Limited and Public Limited Companies
It can be tricky to remember all the differences at a glance, so here's a simple version set into a table to break it down for you:
At last, we all come down to the most important question,
Which structure is right for your business?
When deciding between a Private Limited Company and a Public Limited Company in India, think about your business goals:
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If you're a small startup or a family-owned business that wants to keep control within a select group, a Private Limited Company is likely your best option. It’s easier to manage and doesn't require as much public transparency.
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If you're looking for rapid growth and need to raise large amounts of capital, becoming a Public Limited Company and getting listed on the stock exchange could be the right choice. Just be prepared for higher levels of regulation and public scrutiny.
To learn more about such topics in a simplified manner, enrol on our course on company law.
Conclusion
In India, Pvt. Ltd. Companies and PLCs each serve different business needs. A Pvt. Ltd. Company is ideal for small businesses or startups that want to maintain control and limit outside interference, while a PLC is better suited for large businesses looking to expand quickly through public investment.
Understanding the key differences will help you choose the structure that best fits your vision and growth plans. Whether you’re aiming to build a local business or grow a corporate empire, selecting the right foundation is the first step toward success.
Read more about the types of companies under the Companies Act 2013, which differentiates on the basis of the number of members, size, liability and many more.
FAQs
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What is the minimum no. of shareholders required for a Private Limited Company and a Public Limited Company in India?
A Private Limited Company in India requires a minimum of 1 shareholder (in the case of a One-Person Company) and up to 200 shareholders. For a Public Limited Company, the minimum requirement is 7 shareholders, and there is no upper limit.
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Can a Private Limited Company convert into a Public Limited Company?
Yes, a Private Limited Company can convert into a Public Limited Company by meeting certain regulatory requirements, including approval from the shareholders, meeting the capital threshold, and fulfilling the necessary compliance requirements like filing with the Ministry of Corporate Affairs (MCA).
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Can a Private Limited Company issue shares to the public?
No, a Private Limited Company cannot invite the public to subscribe for its shares. Public share offerings are reserved for Public Limited Companies through an Initial Public Offering (IPO).
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What are the capital requirements for a Private and a Public Limited Company in India?
A Private Limited Company in India must have a minimum paid-up capital of ₹1 lakh, whereas a Public Limited Company requires a minimum paid-up capital of ₹5 lakh to start operations.
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Is it mandatory for Public Limited Companies to be listed on a stock exchange?
Not necessarily. A Public Limited Company can be unlisted, meaning its shares are not publicly traded on the stock exchange. However, listed Public Limited Companies are those that offer their shares to the public and are traded on exchanges like the NSE or BSE.