Private and Public Companies

Private and Public Companies. Either of the above kinds of companies (i.e., a limited liability company and an unlimited liability company) may be private or public (s.12).

A private company can be formed by merely two persons by subscribing their name to the Memorandum of Association. It means a company which has a minimum paid-up capital of one lakh rupess or such higher paid up capital as may be prescribed; and by its Articles:

            (i)  restricts the rights of its members to transfer shares;
            (ii)  limits the number of its members to fifty, excluding its employee-members or past employee-members; provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purpose of this definition, be treated as a single member;

            (iii)  prohibits an invitation to the public to subscribe to its shares and debentures; and
            (iv)  prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

A public company means a company which (a) is not a private company; (b) has a minimum paid-up capital of Rs 5 lakhs or such higher paid-up capital as may be prescribed; (c) 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 (Contacts) Regulation Act, 1956, shares and debentures of public companies only are capable of being dealt in on a stock exchange.

Listed Public Company [s.2 (23)]. It means a public company which has any of its securities listed on any recognized stock exchange.