What Is the Difference Between Public and Private Companies in India?

The Companies Act 2013 recognizes several types of companies in India, including One Person Companies, Private Limited Companies, Public Limited Companies, Section 8 Companies, and more. Among these, private and public limited companies are the two most widely chosen structures because they offer limited liability, separate legal identity, and formalized ownership systems.

Understanding the difference between public and private companies is essential for entrepreneurs, investors, and students of corporate law. Your decision shapes everything from compliance obligations to fundraising capacity and long-term scalability. Before choosing a structure, it is important to know how each company type operates, what legal rules apply, and how ownership and governance differ.

What Is a Private Company? (Section 2(68))

A private company is a closely held business structure where ownership is restricted. Section 2(68) of the Companies Act 2013 defines a private company as one that restricts share transfer, limits membership, and prohibits public invitations for capital.

Startups, SMEs, family-owned businesses, and founder-driven ventures usually prefer private companies. The structure encourages tighter control, quicker decision-making, and reduced compliance requirements. It also creates a more secure environment for initial growth, especially when founders want to avoid external interference.

Features of a Private Company

A private company must have a minimum of two members and can have up to two hundred. This limit helps maintain a controlled ownership environment. It also requires at least two directors, one of whom must be a resident of India.

Unlike public companies, private companies do not issue a prospectus and cannot sell shares to the general public. Their shares are privately held and often exchanged only among existing shareholders or approved investors. The law earlier mandated minimum paid-up capital, but this requirement has since been removed, making it easier to incorporate.

Ownership and Share Structure

Ownership in a private company remains within a smaller, defined group. This structure ensures that founders have direct control over who becomes a shareholder. The Articles of Association generally restrict share transfers, requiring board approval before shares are moved.

This approach benefits businesses that want protection from hostile takeovers or dilution of control. Investors also favour private companies when they want structured governance and negotiated rights.

Private Limited Company Rules in India

Private companies must follow several legal rules:

They must maintain statutory registers, file annual returns with the Registrar of Companies, hold board meetings, and follow basic corporate governance standards. However, the compliance requirements are still lighter compared to public companies. This makes the private limited structure suitable for businesses in early or mid-stage growth where flexibility matters more than public visibility.

What Is a Public Company? (Section 2(71))

A public company is an entity with an open ownership structure. It is defined under Section 2(71) as a company that is not a private company, and that may offer its shares to the public. Public companies are ideal for businesses that aim to scale significantly, raise large volumes of capital, and eventually list on stock exchanges.

Public companies can issue securities through initial public offerings, rights issues, and institutional placements. Their ownership often becomes widespread, ranging from retail investors to financial institutions.

Features of a Public Company

A public company must have at least seven shareholders and three directors. There is no maximum limit on the number of shareholders. This flexibility supports large-scale investment and shareholding diversity.

Shares of public companies are freely transferable, meaning any person can buy or sell them. This liquidity is one of the primary advantages of being a public company. It also increases accountability, as dispersed shareholders expect transparent governance and professional management.

Public Limited Company Requirements

Public companies face higher compliance obligations than private companies. They must file detailed financial statements, conduct frequent board meetings, and maintain committees such as Audit Committees and Nomination and Remuneration Committees. They must also publish annual reports and disclose financial performance more transparently.

If a public company is listed, it must comply with SEBI regulations and follow stricter disclosure norms. This includes publishing quarterly results, adhering to insider-trading rules, and maintaining corporate governance reports.

Corporate Governance Requirements

Corporate governance becomes a central responsibility for public companies. Listed companies must appoint independent directors, establish internal control mechanisms, and operate with transparency. These requirements create investor confidence and protect minority shareholders.

The involvement of the public in the company’s capital increases expectations of ethical management. Thus, the law enforces higher accountability standards on public companies than on private ones.

Key Differences Between Public and Private Companies in India

The main difference lies in ownership, capital raising, share transferability, and compliance. Private companies operate with restricted membership and limited share movement, while public companies allow free share transfer and public investment.

These differences result in private companies having more flexibility and less compliance, while public companies gain access to larger capital but operate under far stricter regulations.

Comparison Table: Private vs Public Company

Criteria	Private Company	Public Company
Governing Section	Section 2(68)	Section 2(71)
Members	2 to 200	Minimum 7, no limit
Directors	Minimum 2	Minimum 3
Share Transfer	Restricted	Freely transferable
Capital Raising	Cannot invite public	Can raise public funds
IPO Eligibility	Not eligible	Eligible
Compliance Level	Moderate	High
Ownership Structure	Close-knit	Widely dispersed

Ownership and Control: How They Differ

Private companies maintain tighter control, usually among founders or a limited group of investors. Decisions are quicker, and ownership remains stable. Public companies, with dispersed ownership, operate under greater scrutiny and require formal governance structures to ensure transparency.

Shareholders in public companies can buy or sell their stakes without affecting operations, while private companies carefully evaluate every ownership change.

Fundraising, Capital, and IPO Eligibility

Private companies rely on private funding sources, including angel investors, venture capitalists, and internal financing. They cannot issue shares to the general public.

Public companies, however, can raise capital through public offerings, which unlock significantly larger fundraising potential. IPO eligibility makes public companies attractive for high-scale expansion. However, the readiness for IPO demands strong financials, governance, and compliance discipline.

Compliance Requirements for Public vs Private Companies

Public companies undergo more rigorous audits, internal controls, and reporting mechanisms. They must file detailed financial statements, follow SEBI guidelines, and maintain transparency in their operations. Listed companies must also comply with corporate governance norms and quarterly reporting.

Private companies follow mandatory compliance schedules but operate with fewer restrictions. Their decisions remain internal, and they do not need to disclose financial results publicly.

Share Transfer and Liquidity

Share transferability is one of the clearest distinctions. Private companies restrict share transfers, which protects the ownership structure but reduces liquidity. Public companies, however, allow free transfer of shares, offering investors flexibility and enabling efficient trading on stock markets.

Types of Company Registration in India

Other types of company registrations include One Person Company, Section 8 Company, LLP, and Producer Company. However, private and public limited companies remain the most popular because they offer structured governance and limited liability protection.

Minimum Capital Requirements

The Companies Act once required minimum paid-up capital, but today neither private nor public companies have a mandatory minimum capital requirement. In practice, public companies planning IPOs require higher capital strength to meet regulatory and market expectations.

Which Company Structure Should You Choose?

Choose a private company if you want flexibility, controlled ownership, lower compliance, and quicker decision-making. This structure suits startups and family-driven businesses.

Choose a public company if your business requires large-scale funding, intends to attract institutional investors, or plans to list on a stock exchange in the future.

Conclusion

Both public and private companies serve different business needs. By understanding the difference between public and private company in India, entrepreneurs can make informed decisions about ownership, compliance, fundraising, and governance. Your choice should align with your long-term goals, capital requirements, and operational preferences.