Planning to Start a Business in India? Private Limited Company vs Public Limited Company - Which One is Best for You?

Introduction:

When starting a business in India, one of the first legal decisions is choosing the right type of company. Two popular options are:

• Private Limited Company 

• Public Limited Company.

While both offer limited liability and a separate legal entity status, they differ significantly in terms of ownership, compliance, capital raising, and more. In this blog, we break down the key differences to help you make the right choice.

Features you should know before starting up:

1. Legal Structure:

a.        Private Limited Company (Pvt Ltd):

A Private Limited Company is a separate legal entity governed under the Indian Companies Act, 2013. It requires a minimum of 2 shareholders and 2 directors. This structure is ideal for startups that plan to raise investments or scale product-based businesses, as it offers credibility, growth potential, and ease of ownership transfer.

b. Public Limited Company (Ltd):

A Public Limited Company is a separate legal entity governed under the Indian Companies Act, 2013. It requires a minimum of 7 shareholders and 3 directors. This structure is ideal for that have large-scale growth ambitions and are looking to raise capital from the public or institutional investors.

2. Number of Members and Directors

Criteria	Private Limited	Public Limited
Minimum Members	2	7
Maximum Members	200	Unlimited
Minimum Directors	2	3

3. Investment and Fund Raising:        

a.        Private Limited Company:

Private Limited Companies have multiple options for raising funds, such as issuing equity shares, compulsorily convertible preference shares (CCPS), or debentures. This makes it a favourable choice for angel investors, venture capitalists, and private equity. Moreover, shares can be easily transferred, enhancing exit options for investors.

If you want to read more about ways in which a startup can raise funds, [Click Here].

b. Public Limited Company

Public Limited Companies can raise capital by issuing equity shares, preference shares, and debentures, and these can be offered to the public through mechanisms like Initial Public Offering (IPO) or Follow-on Public Offering (FPO). An IPO is used when the company offers its securities to the public for the first time, while an FPO allows an already listed company to raise additional capital. Apart from public offerings, a public company can also raise funds through private placements, rights issues, or Qualified Institutional Placements (QIP) depending on its funding strategy.

4. Share Transferability

a.        Private Limited Company 

Shares are not freely transferable. The Articles of Association (AOA) typically impose restrictions such as vesting periods, right of first refusal, and the requirement for Board approval before any share transfer can take place. These safeguards help maintain control within a limited group of shareholders.

b. Public Limited Company 

Shares of a public limited company are freely transferable and can be traded on recognized stock exchanges, enabling easy entry and exit for investors.

5. Compliance Requirements

a.        Private Limited Company 

A Private Limited Company is not subject to any minimum capital requirement. It must comply with the provisions of the Companies Act, 2013, including filing of annual returns and audited financial statements with the Registrar of Companies (ROC). While it does not have any obligation for public disclosures, certain basic financial data becomes publicly accessible through the MCA portal. Compliance obligations include holding board meetings, maintaining statutory registers, and ensuring timely internal reporting and statutory audit.

b. Public Limited Company 

A Public Limited Company must maintain a minimum paid-up capital of ₹5 lakhs and comply with the Companies Act, 2013, along with additional regulations prescribed by SEBI and relevant stock exchanges (if listed). Public companies are required to make extensive disclosures, ensuring a high level of transparency to safeguard investor interests. Compliance includes filing annual returns, conducting board and shareholder meetings, getting accounts audited, and adhering to SEBI’s continuous disclosure requirements. Failure to comply with these obligations may result in strict penalties and regulatory action.

6. Taxation:

a. Old Regime

Under the old regime, Private and Public Limited Companies are taxed at the same rates:

• 25% if turnover ≤ ₹400 crores

• 30% if turnover > ₹400 crores

• Add: 4% Health & Education Cess

Surcharge:

• Nil – if income ≤ ₹1 crore

• 7% – if income > ₹1 crore and ≤ ₹10 crores

• 12% – if income > ₹10 crores

MAT (Minimum Alternate Tax):

• Applicable at 15% of book profits + surcharge + 4% cess

• MAT credit can be carried forward for 15 years

• Not applicable if company opts for the new regime under Section 115BAA or 115BAB

b. New Regime:

Applicable uniformly to both Private and Public Limited Companies:

Sec 115BA:

Domestic manufacturing companies incorporated on or after 01.03.2016 are only eligible to take benefit under this section with tax rates of 25% + surcharge + 4% cess, opting for this section disqualifies you from claiming specified exemptions/deductions.

Sec 115BAA:

All domestic companies regardless of turnover or date of incorporation can opt this sec for tax rates with Tax rate is 22%, plus 10% surcharge and 4% cess, with no exemptions or deductions allowed (except for a few like additional depreciation not being allowed).

Sec 115 BAB:

New domestic manufacturing companies incorporated on or after 01.10.2019, and commencing manufacturing on or before 31.03.2024 (Now extended to 2025) with Machinery that’s not used before can opt for this section with tax rate of 15%, Plus 10% surcharge and 4% cess, with no exemptions or deductions allowed.

7. Compliance Requirements for Conversion from Private to Public Limited Company

A Private Limited Company can be converted into a Public Limited Company either voluntarily or when required to do so by law. The Companies Act, 2013, provides the legal framework for such conversion, and companies must follow the prescribed process and post-conversion compliance norms.

a.       Voluntary Conversion

A Private Limited Company may opt for voluntary conversion to expand its operations, access public funding, or improve its market credibility. The process begins with the Board of Directors passing a resolution approving the proposal for conversion. This must be followed by obtaining shareholders’ approval through a special resolution. The company is then required to file Form INC-27 with the Registrar of Companies (ROC). Upon approval, the ROC will issue a fresh Certificate of Incorporation reflecting the status as a Public Limited Company. After conversion, the company must comply with statutory requirements applicable to public companies, such as maintaining a minimum of three directors, adhering to broader disclosure norms, and modifying its Articles of Association in line with public company provisions.

b.       Mandatory Conversion

Mandatory conversion applies when a Private Company ceases to meet the conditions that define a “private company” under Section 2(68) of the Companies Act, 2013. Specifically, if the company’s number of members exceeds 200 (excluding employee-shareholders), or if it invites the public to subscribe to its shares or debentures, it is legally required to convert into a Public Limited Company. In such cases, the company must undergo the conversion process and ensure full compliance with the laws and obligations applicable to public companies.

Conclusion:

Choosing between a Private Limited Company and a Public Limited Company ultimately depends on your business vision and long-term goals. If you're a startup or a growing business seeking limited compliance requirements, a Private Limited Company offers flexibility, ease of management, and privacy. On the other hand, if you're aiming to expand at a national or international level and want access to public capital, a Public Limited Company is better suited for such scale and exposure. It's also worth noting that a Private Limited Company can be converted into a Public Limited Company once it meets prescribed thresholds related to turnover, paid-up share capital, or member count.

Pro Tip:

At ProLead, we assist businesses in choosing the right structure, managing end-to-end registration, ensuring regulatory compliance, and supporting during complex processes like the conversion from Private Limited to Public Limited Company. Let us handle the legalities, so you can focus on building and scaling your business with confidence.