As a private company cannot ask the public to subscribe to its capital and the total number of shareholders cannot exceed 50, the company necessarily raises share capital from people known to the founding members. After incorporation, a private company can allot shares to new members to raise capital and start its business.
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| One of the Public Ltd Companies |
The companies can be classified in terms of the ownership and numbers of its share holders. According to this classification a company can be :
1. A Private Limited or
2. A Public Limited
· All the members put together need to pay a minimum capital of Rs. One lakh at the time of registration.
· The articles of association of a private company should impose restriction on the selling of shares by its shareholders.
· Further, the articles should prohibit any invitation to the public to subscribe to the shares or debentures of the company.
· For forming a public company, at least seven persons should subscribe their name to the memorandum of association.
· Unlike a private company, there is no restriction on the number of members.
· For incorporating a public company, a minimum paid up capital of Rs. Five lakhs is required.
· A public limited company can seek share contribution form the public.
Most of the public companies raise capital by inviting the public to subscribe. This process of inviting public subscription is stringently regulated by the Companies Act, Securities Exchange Board of India(SEBI) Act and regulations of individual stock exchanges.
The key difference between a private company and a public company is that a public company can raise its capital from the public. Thus, it has been made subject to restrictions, scrutiny and supervision, so as to protect the public interest.
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