Corporate Entities in India can be categorized into various types, class, categories and sub categories.
Two of the most popular and widely known classes of Companies are Private Company and Public Company. At the time of incorporating business entity applicants are provided with an options to select the class of Company basis which provisions of Companies Act, 2013 are applied. With an intention to provide liberty to businessmen to avail benefits of either class at later stage,Companies Act 2013 allows, post incorporation, to alter the class of Companyfrom Private to Public and vice versa.
In layman language, Private Companies are closely held Companies which can restrict transfer of shares by its Articles of Associations, prohibits invite public in any ways to subscribe their shares and have restriction regarding maximum number of members.
And Public Companies are those which do not have any such restrictions in their Articles of Associations with respect to transferability of Shares, invitation to public for subscription of Shares or regarding number of maximum members.
Both forms of Companies have their own benefits and limitations and operates according to the provisions of Companies Act, 2013 and rues thereof.
Companies Act, 2013 defines Private and Public Company as follows
2 (68) “PRIVATE COMPANY” means a company which by its articles
(i) restricts the right to transfer its shares;
(ii) except in case of One Person Company, limits the number of its members to two hundred:
Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member:
Provided further that—
(A) persons who are in the employment of the company; and
(B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased,
shall not be included in the number of members; and
(iii) prohibits any invitation to the public to subscribe for any securities of the company
2 (71) “PUBLIC COMPANY” means a company which—
(a) is not a private company [AND];
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;
Private Companies, willing to convert its status from Private to Public has to comply provisions as stipulated in Companies Act, 2013 which are enumerated as below:
SECTIONS AND RULES OF COMPANIES ACT, 2013 APPLICABLE FOR CONVERSION
- Section 2(68) and 2(71) :Definition Of Private And Public Company
- Section 3 : Formation of Company
- Section 13 read with Rule 29 of Companies (Incorporation) Rules 2014: Alteration of Memorandum of Association
- Section 14 read with Rule 33 of Companies (Incorporation) Rules 2014: Alteration of Articles of Association
- Section 18: Conversion of Companies Already Registered
- Section 149: Company to have Board of Directors