Introduction
Major Differences Between Private Limited and Public Limited Companies
“Ltd” stands for a Public Limited Company, while “Pvt Ltd” refers to a Private Limited Company. A company is considered private limited only when its shares are exclusively held by private individuals. Private Limited Companies are typically owned by a group of promoters. In contrast, shares in a Public Limited Company (Ltd) can be bought by anyone.
These companies are not controlled by a small group of promoters; instead, they are owned by the general public.
Public limited company
Directors manage and shareholders own a public limited company, with the ability to freely trade its shares among the public.
- Unlike partnerships and sole traders, a public limited company maintains an independent existence from its owners, safeguarding it from debts and liabilities.
- Shareholders’ accountability for business losses is limited to the value of their shares.
- Only public limited companies can generate funds by selling shares to the general public, and these shares can also be enlisted on a stock exchange.
- When a surplus of earnings exists, the company distributes profits to shareholders as dividends.
Pros and cons of public limited companies
There are various pros and cons of Ltd which a business person should know-
Pros
- Investors from all walks of life can inject their funds into the company via shares, often resulting in a substantially greater capital influx compared to a private limited company.
- Company founders can exit the business comfortably, thanks to the heightened ease of share transferability, which facilitates a favourable exit strategy.
- Prominent Ltds that are widely recognized attract heightened bidding interest.
- The presence of public shares and stock exchange listing bolsters brand recognition, leading to amplified sales and heightened visibility to potentially valuable business collaborators.
Cons
- A minimum of £50,000 nominal share capital, with a commitment of £12,500 initially paid, is necessary to initiate the business. These initial expenses are notably higher compared to a private limited company.
- Furthermore, there are more demanding legal and regulatory obligations, such as obtaining a trading certificate from Companies House before commencing operations and adhering to the regulations set forth by the London Stock Exchange.
- Additionally, the company becomes more susceptible to a hostile takeover if a significant number of shareholders concur with a bid.
- A potential acquirer can amass a substantial shareholding in advance of initiating a takeover attempt.
Private limited company
The most prevalent method of incorporating a company in the UK is through a private limited company.
- Unlike a public limited company, it functions as a separate legal entity from its directors and shareholders.
- Essentially, the company possesses its profits, liabilities, and business assets.
- Private limited companies place limitations on the transfer of shares, barring the general public from purchasing them.
- Each member’s or shareholder’s liability is confined, implying that in the event of the company’s insolvency and subsequent liquidation, the owners are accountable solely for the sum they initially invested in the company.
- They are not obligated to liquidate their assets or funds. In essence, the personal holdings of shareholders remain safeguarded from risk.
Pros and cons of Private limited companies
There are various pros and cons of Pvt Ltd which a business person should know –
Pros
- Owners can maintain control since the shareholder count remains low, frequently consisting of supportive friends or family members.
- They exclusively share profits and receive dividends.
- The company can acquire funds more effectively through ordinary share issuance and borrowing.
- Investors benefit from limited liability protection if the company faces failure.
Cons
- Registration with the registrar of companies is a requirement.
- Establishing the company incurs significant initial expenses, encompassing legal and administrative aspects.
- UK private limited companies must utilize documents known as Memorandum of Association and Articles of Association.
- Motivating and managing workers becomes more challenging since profits exclusively go to shareholders, and numerous workers won’t possess shares.
Difference between Pvt Ltd and Ltd
Distinguishing between private and public companies reveals a fundamental contrast in their nature.
- Recognized stock exchanges host public limited companies, enabling the general public to trade company stocks easily. In contrast, private limited companies avoid stock exchange listings and trading, confining ownership to their members.
- Initiating a public company mandates involvement from a minimum of seven members, whereas a private limited company can commence operations with only two members.
- Public companies must conduct general meetings as an essential requirement, while private companies are exempt from this obligation.
- Regarding share ownership, private companies restrict share transfers, unlike public companies where shares can be freely traded with the public.
- Public limited companies face a substantial regulatory burden, which differs significantly from private companies enjoying relative freedom from regulatory complexities.
- Public companies are obliged to appoint a company secretary, while private companies retain the freedom to make this decision.
- Financial requisites also differ: public companies need a minimum capital of 5 lakh rupees, whereas private companies are held to a lower threshold of 1 lakh rupees.
- Membership parameters further distinguish the two: public companies operate without membership limitations, whereas private companies are limited to a maximum of 200 members.
Distinguishing between “Private Limited” (Pvt Ltd) and “Limited” (Ltd) companies showcases key disparities in their structures. Here’s a breakdown of their differences:
Ownership and Shareholding:
– A “Private Limited” company restricts share ownership to a specific group of individuals and does not offer shares to the general public.
– A “Limited” company can issue shares to the public, allowing wider ownership and investment.
Minimum Number of Members:
– A “Private Limited” company can commence with a minimum of two members.
– A “Limited” company requires a minimum of seven members to start.
Listing and Trading:
– A “Private Limited” company’s shares are not listed on a stock exchange and cannot be publicly traded.
– A “Limited” company’s shares can be listed on a recognized stock exchange, enabling public trading.
Regulatory Requirements:
– “Private Limited” companies often have fewer regulatory obligations compared to “Limited” companies, which usually face more stringent compliance requirements due to public shareholding.
Disclosure and Transparency:
– “Limited” companies are subject to higher levels of disclosure and transparency, given their public ownership structure.
– “Private Limited” companies have a more limited scope of disclosure, as they primarily cater to a closely held group of shareholders.
Corporate Governance:
– “Limited” companies typically adhere to more rigorous corporate governance practices due to their larger scale and public nature.
– “Private Limited” companies might have more flexible governance arrangements suited to their specific ownership dynamics.
Access to Capital:
– “Limited” companies have broader access to capital through the issuance of shares to the public and potential investors.
– “Private Limited” companies rely on a smaller circle of shareholders and may have more restricted avenues for raising capital.
Overall, the distinction between “Private Limited” and “Limited” companies lies in their ownership structure, share trading possibilities, regulatory requirements, and corporate governance practices.
FAQs
Here are some frequently asked questions (FAQs) about Private Limited (Pvt Ltd) and Limited (Ltd) companies:
- What’s the difference between Pvt Ltd and Ltd companies?
Pvt Ltd companies have restrictions on ownership and are usually smaller, while Ltd companies often have a wider ownership base and can be larger in scale.
- What does “Private Limited” mean?
A Private Limited company is a type of business entity where ownership is limited to a specific number of shareholders, and shares cannot be publicly traded.
- What does “Limited” mean in a company name?
“Limited” in a company name indicates that the liability of the company’s shareholders is limited to the amount they have invested in the company.
- How many shareholders are required for a Pvt Ltd company?
In most jurisdictions, a Pvt Ltd company can have a minimum of 2 shareholders and a maximum of 200 shareholders.
- Can a Pvt Ltd company go public?
Generally, Pvt Ltd companies cannot offer shares to the public through stock exchanges. However, they can convert into a public company under certain conditions.
- Is a Pvt Ltd company’s financial information public?
Pvt Ltd companies usually have more privacy as their financial information is not required to be publicly disclosed, unlike public Limited companies.
- Are Ltd companies larger than Pvt Ltd companies?
Not necessarily. The company size can vary for both Pvt Ltd and Ltd companies. Ltd companies can be of various sizes, just like Pvt Ltd companies.
- How is the ownership transferred in Pvt Ltd and Ltd companies?
In Pvt Ltd companies, existing shareholders sell shares to transfer ownership. In Ltd companies, shares can be bought and sold publicly on stock exchanges.
- What are the compliance requirements for Pvt Ltd and Ltd companies?
Pvt Ltd and Ltd companies have different compliance requirements based on their legal structures and the jurisdictions they operate in.
- Can foreigners own shares in Pvt Ltd and Ltd companies?
Yes, foreigners can own shares in both Pvt Ltd and Ltd companies, subject to the regulations of the specific country.
