"PRIVATE LIMITED COMPANY VS. LIMITED COMPANY UNDER THE COMPANIES ACT, 2013: A COMPREHENSIVE LEGAL OVERVIEW"

By: -        Natasha Rocha is a 4th year BBA LLB Law student, studying at  ISBR Law College affiliated to Karnataka State Law University.

-        Understanding what is “Private Limited Company” and “Limited Company” under the “Companies Act, 2013”.

The structure of a business plays a crucial role in determining its legal standing, liability, compliance requirements, and future prospects. In India, the Companies Act, 2013 provides a robust legal framework for the incorporation and governance of various types of companies. Among these, the Private Limited Company and the Limited Company (commonly referred to as Public Limited Company) are the most prominent forms of corporate entities.

This article explores in detail the meaning, characteristics, distinctions, and legal provisions applicable to Private Limited and Limited Companies under the Companies Act, 2013.

Understanding the Basics

Before diving into the legal provisions and distinctions, it is important to understand the meaning of the terms:

What is a Company?

According to Section 2(20) of the Companies Act, 2013:

“Company” means a company incorporated under this Act or under any previous company law.

A company is a legal entity separate from its shareholders, with perpetual succession, the ability to sue and be sued, and limited liability protection.

What is a Private Limited Company?

As per Section 2(68) of the Companies Act, 2013:

“Private company” means a company having a minimum paid-up share capital as may be prescribed, and which by its articles:

(i) restricts the right to transfer its shares;
(ii) limits the number of its members to two hundred; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company.

Features of a Private Limited Company

1. Minimum and Maximum Members:

o   Minimum: 2 members

o   Maximum: 200 members (excluding present and past employees)

2. Minimum Directors:

o   At least 2 directors are required to incorporate a private limited company.

3. Share Transfer Restrictions:

o   Shares cannot be freely transferred; subject to the conditions in the Articles of Association (AoA).

4. No Public Subscription:

o   Cannot raise capital by inviting the public to buy its shares.

5. Minimum Capital Requirement:

o   No specific minimum capital under the Act (as per Companies Amendment Act, 2015).

6. Postfix “Private Limited”:

o   The company name must end with ‘Private Limited’.

Advantages

• Limited liability: Personal assets of shareholders are protected.

• Ease of formation: Compared to public companies.

• Less regulatory burden: Fewer compliance requirements.

• Ownership control: Closely held among few shareholders.

What is a Limited Company (Public Limited Company)?

As per Section 2(71) of the Companies Act, 2013:

“Public company” means a company which—

(a) is not a private company; and
(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be a public company.

Features of a Public Limited Company

1. Minimum Members and Directors:

o   Minimum: 7 members

o   No upper limit on the number of members

o   Minimum 3 directors required

2. Free Transferability of Shares:

o   Shares can be freely traded and transferred, especially if listed.

3. Raising Capital from Public:

o   Can invite public to subscribe to shares and debentures via IPO or other means.

4. More Stringent Compliance:

o   Subject to detailed disclosures, filings, and regulations by SEBI (if listed).

5. Postfix “Limited”:

o   The name ends with ‘Limited’.

Advantages

• Large capital base: Can raise funds from public and institutions.

• Wider ownership and credibility: Preferred by investors, banks, and partners.

• Perpetual succession and liquidity: Especially if shares are traded in stock exchanges.

Legal Provisions under Companies Act, 2013

Incorporation (Section 3)

• A private company can be formed with 2 or more persons.

• A public company requires 7 or more persons.

Memorandum and Articles (Sections 4 and 5)

• The Memorandum of Association (MoA) defines the scope and purpose of the company.

• The Articles of Association (AoA) contain the rules of internal management.

Private companies must include the restrictive clauses in their AoA to qualify under Section 2(68).

Commencement of Business (Section 10A)

• Both private and public companies must file a declaration of commencement of business before starting operations.

Prospectus (Section 23 to 42)

• A public company that raises capital from the public must issue a prospectus as per Section 26.

• Private companies are prohibited from issuing a prospectus or inviting public subscription.

Statutory Meetings and Filings

• Annual General Meetings (AGM): Mandatory for both types.

• Annual Return and Financial Statements: To be filed with the Registrar of Companies (ROC).

Conversion from Private to Public and Vice Versa

The Companies Act, 2013 allows conversion of a private company into a public company and vice versa, subject to certain conditions:

Conversion Process (Section 14)

• Alteration of Articles of Association by passing a Special Resolution.

• Approval from ROC (Registrar of Companies) required.

• Filing of necessary forms (like MGT-14, INC-27) with prescribed fees.

Examples of Each Type

Private Limited Companies in India:

• BYJU’S Pvt. Ltd.

• Flipkart Pvt. Ltd.

• Zomato Pvt. Ltd. (before listing)

Public Limited Companies in India:

• Reliance Industries Ltd.

• Infosys Ltd.

• Tata Steel Ltd.

These companies demonstrate how both types serve different business needs and stages of growth.

Conclusion: Choosing the Right Company Structure

The decision to register a Private Limited or Public Limited Company under the Companies Act, 2013 depends on various factors such as:

• Capital requirements

• Ownership structure

• Regulatory capacity

• Long-term vision

For startups and small businesses, a Private Limited Company offers flexibility, control, and protection. In contrast, a Public Limited Company suits large businesses looking for substantial capital, market exposure, and investor confidence.

Understanding the distinction and regulatory framework helps entrepreneurs, investors, and professionals make informed decisions aligned with their business goals and legal compliance under the Indian corporate law system.

 Date: 06th August 2025.