According to Lord Justice Lindley, “A Company is an association of many persons who contribute money or money’s worth to shares and employs it in some trade or business and who share the profit and loss arising there from. The shares so contributed are denoted in money and are the capital of the company. The persons who contribute to it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. The shares are always transferable although the right to transfer is often more or less restricted.”
Now, you have decided what business to start and approximately how much capital will be required, you may find it necessary to join with one or more associates to launch the enterprise. The legal structures that you can set your business up in could be Public Company or Private Company?
In case of a public company, the liability of its members is restricted to the amount of share capital subscribed by them or standing in their names. At any time the company can be wound up and the value of its assets could be insufficient to meet its liabilities. The companies falling under this category are required by law to add the word “Limited” at the end of their names. Shares are offered to the public company. There is no binding on maximum number of shareholders, but there is a minimum of 7. There is no limit on the transfer of its shares. There should be minimum number of two directors.
A public company can issue shares to the public to raise capital. Shareholders are not liable for the debts of the company. The company has an indefinite life span; it means the business can continue even if the members die. As the public companies have a wide membership, control and operate substantial financial resources and cover fields of activities affecting not only the members but also the public. A number of regulatory provisions have been made under the company law to exercise control on the working of these companies.
In case of Private Company, shares are not offered to the public. There is a maximum number of 50 and a minimum number of 1 shareholder. Its shares cannot be transferred freely, and such a company is prohibited from inviting the public to subscribe to its shares and debentures. The words “(Pvt.) Ltd” will appear at the end of the company’s name. Private Companies do not have to make information available to the public. Only the founders, employees, and possibly a few large investors (venture capitalists) may own interest. Whatever information a private company makes available is completely up to the individual company.
Thus given a particular situation, keeping in mind your areas of interest as well as grabbing the opportunities coming your way you can figure out what would best suit your business idea – Private Company or Public Company.
Read more about the Importance of Communication in Business. Also know about the Risk Managementand other business terms.
