Public Company vs Private Company: Key Differences & Compliance Implications

Choosing between a private limited company and a public limited company shapes the way a business grows, raises money, and stays compliant. Both structures run under the Companies Act, yet the rules they follow differ widely. Some of these differences are simple. Others quietly change how the company functions every day.

This guide walks through the major differences and what they mean for compliance, governance, and long-term planning. If you are registering a private company or considering converting from private to public, these points help you judge the road ahead.

What Is a Public Limited Company?

A public company chooses to offer its shares to the general public, allowing open trading on a recognised stock exchange. It may be listed or unlisted. A listed company has its shares traded on the exchange, while an unlisted public company does not.

Many businesses choose this route when they plan to grow beyond a closed group of owners or intend to convert a private company to a public limited company.

With this wider ownership comes tighter rules, more disclosures, and greater scrutiny from regulators and investors.

Key Benefits of Public Companies

• Public ownership: Any investor may purchase or trade shares
• Free share transfer: Shares circulate freely in the market without needing approval from other owners
• Stock exchange listing: Many public companies list on exchanges such as the NSE or BSE, while international giants list on markets like the NYSE or NASDAQ
• Higher compliance standards: They must follow strict governance procedures and make their financial information public
• Access to capital: With the ability to invite public investment, these companies can raise large sums for expansion

What Is a Private Limited Company?

A private limited company is a closely held business. Its shares are not traded on any public exchange, and ownership stays with a limited group of people. These may be founders, early investors, or members of the same family. Share transfers are restricted, which helps the group retain control over the company’s direction.

Many small and medium enterprises choose this structure because the rules are flexible and the compliance load is lighter than that of a public company. It offers a clean balance between protection and ease of operation.

If you are planning to start a new business and want a clear understanding from inception to incorporation, follow our detailed guide on registering a company in India. Read the full blog here to start your private company now: How to Register a Company in India: Step-by-Step Guide

Key Benefits of Private Companies

• Limited ownership: A private company keeps its shareholder base small and controlled
• Restricted share transfers: No one can sell shares freely without the consent of other members
• No public listing: Shares do not appear on stock exchanges
• Lower compliance requirements: Compared to a public company, a private company has fewer reporting obligations, which makes day-to-day operations easier
• Limited liability: Owners are protected from personal loss if the business fails

These points set the stage for understanding how different a public company is under the Companies Act, 2013.

Key Operational Differences Between Private and Public Companies

Every company structure carries its own rhythm, and these variations shape how a business grows and complies with the law. Private companies enjoy flexibility that suits close-knit ownership, while public companies work under wider scrutiny and tighter rules. The sections below break down the core distinctions that matter most in daily operations and long-term governance.

1. Formation and Basic Structure

A public company has a wider footprint. It must begin with at least seven subscribers and three directors. There is no limit on the number of members. Anyone can become a shareholder once the company goes public.

Private limited companies start small by design. They need only two subscribers and two directors. Membership stays capped at two hundred, not counting present and former employees who continue as members.

2. Access to Capital

A public company, on the other hand, may issue a prospectus. It may offer shares to the public and raise money from large groups of investors. This opportunity comes with heavier scrutiny and wider reporting responsibilities.

A private company cannot issue a prospectus. It also cannot make a public offer or list its securities on a stock exchange. All fundraising stays within a private circle.

Authorised capital is the maximum a company is allowed to raise, while paid up capital is the amount it has actually received from shareholders. This difference affects both funding and future growth. Thus, it’s essential to understand how a company builds and uses its capital, it helps to know the key difference between authorised and paid-up capital.

3. Meetings and Decision-Making

Meetings guide a company’s decisions and keep its leadership in check. Both private and public companies follow the Companies Act, though their size and structure lead to different rules for approvals, voting, and director roles.

Quorum at AGM

A quorum is the minimum number of members needed for the meeting to count.

• Public company: Needs 5 members present to complete its AGM  if the total strength is up to one thousand
• Private company: Only 2 members are required to complete the AGM 

Under the Companies Act, 2013, the AGM follows specific rules and timelines. You can explore the complete process in this detailed guide on the annual general meeting in company law.

Board Meetings

Public companies must hold at least four board meetings annually, with no more than 120 days between any two meetings. Private companies enjoy relaxed rules. Many private companies enjoy relaxed board meeting rules under MCA exemptions, although the standard requirement remains four meetings unless an exemption applies.

Rotation of Directors

Private companies are free from rotation requirements. The role and responsibilities of directors for a Pvt company are different from those of a public company.

Public companies must rotate directors. Two-thirds of the board must be liable to retire, and one-third of those retire at every AGM.

4. Rights Issue, ESOPs, and Other Corporate Actions

Companies often need fresh capital or wish to reward their teams through share-based plans. These actions look similar on the surface, yet the legal requirements shift depending on whether the company is private, public, listed, or unlisted.

Rights Issue

A rights issue allows existing shareholders to buy additional shares in proportion to their holdings. It protects ownership and lets the company raise funds without bringing in new investors.

Under the Companies Act, 2013, the offer period may run up to 30 days. Here’s how the issue period differs for both company types:

• A private company can shorten these 30 days if 90 percent of its members consent, which helps speed up fundraising.
• A public company must keep the issue open for at least 15 days and no more than 30, ensuring shareholders have enough time to respond.
• The offer letter must reach shareholders at least 3 days before the issue begins.

ESOP Approvals

Employee stock options help companies attract and retain talent, though the approval steps change with the company’s structure.

• Private companies may pass an ordinary resolution to issue ESOPs.
• Public companies must pass a special resolution, which reflects higher governance standards.
• Listed public companies follow the SEBI SBEB and SE Regulations, 2021, covering trust structures, vesting schedules, pricing, and disclosure rules.
• Unlisted public companies follow Rule 12 of the Share Capital and Debentures Rules, which sets out separate conditions for granting options.

5. Deposits and Borrowings

Public companies have no such exemption. They must issue a circular, file Form DPT-1, maintain the deposit repayment reserve, and comply with all related conditions.

Private companies may accept deposits up to one hundred percent of their paid-up share capital and free reserves without completing detailed deposit-related filings, provided they follow the basic rules.

6. Notices, Proxies, and Explanatory Statements

Public companies cannot override these provisions. They must send notices at least twenty-one clear days before a general meeting and attach explanatory statements for all special business.

Private companies hold more flexibility here. Their Articles may override rules on notices, explanatory statements under section 102, or appointment of proxies.

7. Filing of Board Resolutions

Public Companies

• Private companies must file Form MGT-14 for all special resolutions and for the specific board decisions listed under Section 179(3).
• Key actions that trigger filing include:
  • Calls on unpaid shares
  • Approving buy-back of securities
  • Issuing shares or debentures
  • Borrowing or investing company funds
  • Granting loans or security
  • Approving financial statements and the Board Report
  • Diversifying business activities
  • Approving mergers or takeovers

Private Companies

• Private companies must file all special resolutions through MGT-14, but they are exempt from filing most board resolutions under Section 179(3).
• Resolutions on borrowing, issuing securities, or approving financial statements can be passed without submitting the form to the Registrar.
• This exemption reduces routine paperwork and simplifies compliance for private companies.

A detailed guide on Form MGT-14 filing requirements helps clarify each mandatory filing step.

8. Role of Directors and Restrictions

Loans to Directors (Section 185)

Private companies enjoy a limited exemption if

a) No corporate body has invested equity in them,

b) Their borrowings from banks, financial institutions, or any body corporate must stay below twice the paid up capital or ₹50 crore (whichever is lower), and

c) They have no default in repayment.

Public companies must follow Section 185 without exception.

Interested Directors

An interested director is someone whose personal interests, direct or indirect, conflict with the company’s interest in a particular contract or arrangement. The rules for handling such situations differ by company type.

Private companies may allow an interested director to participate in discussions and be counted in the quorum if the interest is disclosed.

Public companies require the director to step aside from the discussion and cannot count him in the quorum.

Learn the minimum and maximum number of directors you need for your private company to have operational efficiency in your business.

9. Mandatory Committees and Key Appointments

Public companies carry higher governance obligations.

Nomination and Remuneration Committee

Public companies must form this committee once they reach any of the following thresholds:

• Paid-up share capital of INR 10 crore or more
• Turnover of INR 100 crore or more
• Outstanding loans, debentures, and deposits of INR 50 crore or more

Private companies may set up this committee voluntarily.

Audit Committee

The same thresholds apply here. Public companies meeting any of the above limits must constitute an Audit Committee, while private companies can choose to form one. Those reviewing internal systems may also refer to a guide on internal audit rules for private companies for better clarity.

Woman Director and Independent Directors

Public companies must appoint these positions once they cross the required limits:

• Woman Director
  • Paid-up share capital of INR 100 crore or more
  • Turnover of INR 300 crore or more
    
• Independent Directors
  • Paid-up share capital of INR 10 crore or more
  • Turnover of INR 100 crore or more
  • Outstanding loans, debentures, and deposits of INR 50 crore or more

Private companies have no obligation to appoint these roles.

Managing Director/Whole-Time Director/Manager

• Private companies need only board approval.
• Public companies require approval from the board, shareholders, and in certain cases the Central Government.

Validity of Acts

• For private companies, the acts of a managing director or whole-time director remain valid even if shareholder approval has not been obtained.
• For public companies, the acts become invalid if the appointment is not approved by shareholders.

10. Appointment of Company Secretary

For both private and public companies, the rule is simple. A company secretary is required once the paid-up share capital reaches ten crore or more.

Auditor Limits and Key Compliance Rules for Public vs Private Companies

Statutory Auditor Limits

Every company must appoint a statutory auditor, but the maximum number of companies an auditor can serve differs for public and private companies. An auditor may take up to twenty assignments in total.

• For public companies, an auditor can take up a maximum 20 companies, including every public limited company.
• Private companies with paid-up capital below ₹100 crore are not counted, allowing an auditor to serve up to twenty other companies besides these.

Companies reviewing their broader record-keeping duties can also refer to a detailed guide on how to maintain statutory registers, which form an important part of overall compliance.

• Secretarial audits trigger at different stages for each structure.
  • A public company must undergo a secretarial audit as soon as it meets the required capital, turnover, or borrowing thresholds.
  • A private company needs one only when borrowings cross one hundred crore.
    
• These differences change how each company operates.
  • Public companies work within a stricter system, which helps maintain transparency and protects investors.
  • Annual compliance for private companies is simpler, which suits smaller teams and closely held ownership.

The choice is clear: a private company offers flexibility, a public company offers credibility, and each business must decide which path matches its goals before moving to the next stage.

As per your annual turnover of a private limited company, you can understand which compliance category you fall under. Go through this detailed blog to learn about annual filings for your private company: Annual compliances for a private company based on turnover

Quick Comparison Table: Public vs Private Limited Company in India

Particulars	Private Limited Company	Public Limited Company
Minimum subscribers	2	7
Minimum directors	2	3
Maximum members	200 (with exceptions)	Unlimited
Prospectus	Not allowed	Allowed
Public issue of securities	Not allowed	Allowed
AGM quorum	2 members	5 members
Board meetings	1 per half-year	4 per year
Director rotation	Not applicable	Mandatory
ESOP approval	Ordinary resolution	Special resolution
Deposits	Certain exemptions	Full compliance required
Filing MGT-14	Not required for major items	Mandatory
Loan to directors	Certain exemptions	Fully applicable
Committees (NRC, Audit)	Voluntary	Mandatory on thresholds
Woman/Independent directors	Not applicable	Applicable on thresholds
Secretarial audit	Limited applicability	Broader applicability

Conclusion

The distance between a public limited company and a private limited company is not just about listing or raising money. It runs through their corporate actions, internal controls, meeting rules, disclosures, filings, and governance commitments.

When you register as a private company, you can enjoy a simpler framework. Public companies operate under a stricter and more transparent system, designed to protect investors and the public. Understanding these distinctions helps founders, boards, and investors choose the right structure and stay compliant throughout the company’s lifecycle.

For those planning to set up or manage either form of entity, our experts at LegalWiz.in offers clear guidance and streamlined services to help navigate registrations, compliance, and ongoing governance with confidence.