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Unit 3: Kinds of Companies

3. Prohibits an invitation to the public to subscribe to its shares and debentures; and Notes
4. Prohibits any invitation or acceptance of deposits from persons other than its members,
directors or their relatives.

3.3.2 Public Company

A public company means a company:
1. Which is not a private company;
2. Has a minimum paid-up capital of 5 lakhs or such higher paid-up capital as may be
prescribed;
3. Is a private company which is a subsidiary of a company which is not a private company.
Section 12 prescribes the minimum number of members as seven who have to subscribe their
names to the memorandum of association but there is no restriction with regard to the maximum
number of members of a public company. A public company may or may not invite public to
subscribe to its share capital. In case, it decides to invite public to subscribe to its share capital,
then it has to issue a prospectus. In case, it decides not to invite public to subscribe to its share
capital and arranges the capital privately then it need not issue a prospectus; it has simply to
submit a statement in lieu of prospectus with the Registrar of Companies at least three days
before it can make allotment of shares. The articles of such a company do not contain provisions
restricting the right of members to transfer their shares. Under the Securities (Contracts) Regulation
Act, 1956, shares and debentures of public companies only are capable of being dealt in on a
stock exchange.

Task Amit and Sunny have been carrying on business in partnership as building
contractors in a small town for some years. They carry on most of the work themselves
and only occasionally employ labour. They have no plans to enlarge the area of their
operations. It has been suggested to them that they ought to trade as a private company
limited by shares. They ask your advice. What are the alleged advantages of trading as a
private company limited by shares? Are there any disadvantages in so trading?

Distinction between Private and Public Company

Following are the main points of distinction between a private and a public company:

In the case of a private company, minimum number of persons to form a company is two
while it is seven in the case of a public company.
In case of a private company the maximum number of members must not exceed fifty
whereas there is no such restriction on the maximum number of members in case of a
public company.

In private company, the right to transfer shares is restricted, whereas in case of public
company the shares are freely transferable.
A private company cannot issue a prospectus, while a public company may, through
prospectus, invite the general public to subscribe for its shares or debentures.
A private company can commence business immediately after receiving the certificate of
incorporation, while a public company can commence business only when it receives a
certificate to commence business from the Registrar.

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