Key Differences Between Private Limited and Limited Company

The major difference between private and public limited company is the number of shareholders, trading of shares and tax fillings. A public limited company can be started with 7 members however; minimum 2 members are required in case of private limited company.

What is a Private Limited Company?

These companies are owned privately by a group of people to make profits and run their business in the market. According to The Companies Act, it should have a minimum 1 Lakh of paid-up share capital.

It is a distinct legal entity with all the shareholders having a limited liability i.e. their contribution in the company is limited to the amount of shares unpaid. The shares of a private limited company cannot be traded publically.

It is the most popular form of business in India as you just require a Certificate of Incorporation to initiate your business operations.

What is a Limited Company?

Limited Company is no different than a Public Company as they have the right to trade their shares in the general public. It is a voluntary association of its members incorporated under the Law (The Indian Companies Act, 1956) with a minimum paid-up share capital of Rs. 5 Lakh. 

The sale of shares greatly contribute to the capital invested (share capital) in the company and the people who buy such shares are said to be the members of the company. The shareholders cannot contribute to the operations/management of the company.

Only the Board of Directors of the Company have the rights to make managerial decisions on behalf of other people. The operations of the company can only be windedup through Law which means that the business remains unaffected by death, insolvency or bankruptcy.

Private Limited v/s Public Company (Limited)

Bonus Points 

• The Public Limited Company should have at least 5 members present at the company meeting while Private Limited Company requires 2 members in this case. 
• Private Limited Company cannot issue a prospectus in the general public while Public Limited Company have the freeedom to do so. 
• It is not compulsory for a Private Limited Company to hold a statutory meeting which is mandatory in case of a Public Limited Company. They also need to submit the report to the Registrar of Companies. 
• The number of directors in a Private Limited Company is 2 while a public limited company must have at least 3 directors to initiate the business operations. 
• The allotment of shares does not require any minimum subscription in case of a Private Limited Company but, public limited company can not allot shares before the minimum subscription is completed. 
• The remuneration and payments offered to the directors/managers in a private limited company does not have any limit however; public limited company can offer only 11% of the net profits as payments to the directors.