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COMPARATIVE ANALYSIS OF PUBLIC & PRIVATE COMPANIES & THEIR SIGNIFICANCE IN INDIAN ECONOMY BY:- ADV. AMARNATH NITIN HABIB
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“COMPARATIVE ANALYSIS OF
PUBLIC & PRIVATE COMPANIES & THEIR SIGNIFICANCE IN INDIAN ECONOMY”
AUTHORED
BY:- ADV. AMARNATH NITIN HABIB
Abstract:
The Indian economy stands as a vibrant tapestry woven with
the threads of public and private enterprises, each contributing uniquely to
its fabric. This comparative analysis delves into the distinctive features,
performance metrics, and broader implications of public and private companies
within the Indian economic landscape.
Drawing upon extensive research and empirical data, this
study investigates the structural, operational, and strategic disparities
between public and private entities. It examines key dimensions such as
corporate governance, financial performance, innovation, market
competitiveness, and socio-economic impact.
Furthermore, the study explores the implications of these
disparities on the Indian economy at large. It illuminates how the interplay
between public and private sectors influences economic growth, employment
dynamics, technological advancement, and social welfare.
Through a nuanced examination of case studies and statistical
analysis, this article elucidates the symbiotic relationship between public and
private enterprises in India. It underscores the significance of fostering a
conducive environment for collaboration, transparency, and equitable regulation
to harness the full potential of both sectors for sustainable development.
Ultimately, this comparative analysis contributes to a deeper
understanding of the complex ecosystem of Indian businesses, providing valuable
insights for policymakers, investors, researchers, and practitioners alike to
navigate the evolving landscape of the Indian economy.
Keywords - Companies Act, 2013,
Economic growth, Private company.
Introduction:
A company is a legally recognized organization created by a group of
people to conduct and manage business-to-business operations. Depending on the
corporate legislation, a corporation can be founded in a variety of ways for
tax and financial liability purposes. After the "Companies Act 1956"
was passed on the advice of the Bhaba Committee, which was established in 1950
with the goal of combining the current corporate laws and creating a new
framework for corporate activity in India, the correct notion of corporations
was established.
The Companies
Act of 1913 was abolished in 1956 following the introduction of this
legislation. The "Companies Act 1956" was abolished in 2013 and
replaced with the "Companies Act 2013". The "Companies Act,
2013" is an Act of the Indian Parliament pertaining to Indian company law
that governs the formation of public, private, and open companies as well as
their duties, directors, and dissolution.
As a result, a business can only exist through registration in
accordance with company legislation. Corporate affairs in India are governed by
a number of company law acts, also known as business laws in India, and rules
that are upheld by the Indian government and managed by the Ministry of
Corporate
Affairs[1].
Definition & Meaning:
Company:
Generally a
company is a group of persons associated together for some common purpose.
According to Section 2(20) of the Companies Act 2013, “A Company means a
company formed under this act or an existing company”. On incorporation a
comapy becomes a body corporate or corporation with a perpetual succession
& a common seal & also acquires a personality i.e Corporate
personality/Separate legal entity distinct from it’s members.
Public Company:
According
section 2(71) of the companies act 2013, A public company means a company,
which is:
A. Not a private company.
B. Has a minimum paid-up
share capital as may be prescribed.[2]
As per the Companies Act of 2013, a public
company is any corporation that is not classified as private. A joint stock
company is a public limited firm. It is regulated under the terms of "The
Companies Act, 2013." It is founded by an association of people with a
minimum paid-up share capital of 5 lakh rupees, and the number of members is
unlimited. Shares are easily transferable, meaning there are no limitations.
The public may be invited to subscribe for shares and debentures by the
company. Upon incorporation, the phrase "Public Limited" is appended
to the name. The general public may purchase registered securities from a
public corporation. A corporation becomes a public company following its
initial public offering. Another name for a public corporation is a
publicly-traded company. A publicly traded firm is one that is able to sell its
shares to the general public directly and trade on open capital markets.
The board of
directors, management, and shareholders all own shares in a public corporation.
A corporation goes public in order to raise additional funding for its
operations. When shareholders buy shares through a stock market, they can
become equity owners in a public corporation, also known as a publicly traded
company. A higher stake in the company is held by a person with more shares
than by a person with less shares. An initial public offering (IPO) is used to
issue shares prior to the start of secondary exchange trading.
Units of
Public Companies are subject to stringent reporting and regulatory
requirements. A company that is a subsidiary of another company and is not a
private company is to be deemed a public company for the purposes of the act,
even if the subsidiary company's articles still state that it is a private
company, according to the proviso appended to the sub-section. An open business
can reach a wider audience.
Benefits of Public Limited Company:
1.
Limited Liability: The amount of shares that Directors and Shareholders own in a
Public Limited Company determines how accountable they are to the company.
2.
Listing in the IPO & Stock Exchange: Public limited businesses are able to list on
well-known stock exchanges and through initial public offerings (IPOs). It
provides a number of advantages and business-related opportunities.
3.
Legal Entity: A Public Limited Company's ability to continue
operating is independent of any individual's participation in the company.
Fund-Raising: A
Public Limited Company may generate funds through crowdsourcing or by involving
the general public while adhering to regulatory requirements. It makes it
easier for an organization to enter new markets and survive existing ones.
4.
Growth and
Expansion: They are frequently used to support
the firm because of their capacity to raise capital. Public companies are
usually in a better position to explore new markets because they have greater
financial potential, which is more easily accessible and on better terms than
private companies.
Conversion of Public Company into Private Company[3]:
It is possible
to transform a public firm into a private or personal one. Section 14(1) states
that "no alteration made in the articles which has the effect of
converting a public into a private company shall have effect unless such
alteration has been approved by the tribunal." Therefore, in order to
accomplish this, a special resolution must be passed, changing the company's
articles to meet the requirements of a private company as specified in section
2(68). The tribunal has the authority to issue any orders it sees fit.
The conversion
of a company from private to public or vise
versa, does not change the identity of the company.
Private Company:
According to
section 2(68) of the Companies Act 2013[4],
A private company means a company having a minimum paid-up share capital as may
be prescribed and which by its articles-
1. Restricts the right to
transfer its shares, it any
2. Except in case of one
person company, limits the number of its members to 200, and
3. Prohibits any invitation
to the public to subscriber for any shares in, or debentures of the company.
The private
limited corporation is essentially a joint stock company. On the other hand,
the Indian Companies Act, 2013 governs it. The minimum paid-up capital required
to organize it is one lakh rupees. A maximum of 200 people can join; current
employees who were members during their job terms are not included in this
figure. After their work with the company ends, employees may still remain
members. Share transfers are prohibited. It forbids the public from entering
through share and debenture subscription. Its name ends with the word
"private limited."[5]
A private
limited company is a business owned by a small number of individuals. It is
held by a group of people known as shareholders and registered for
predetermined purposes. Personal companies are a common choice for startups and
firms with higher development aspirations when choosing a business structure.
When a corporate entity registers under India's Companies Act of 2013, it is
acknowledged as a company. The Ministry of Corporate Affairs, or MCA as it is
commonly called, is the governing body.
Benefits of Private Company:
There are some
advantages of private company:
1. Incentives in private
businesses are consistently greater than those in public businesses. Because
their compensation is based on the success of the business, private firm
managers and officials are more likely to exercise caution than those in public
companies.
2. Political meddling
prevents publicly traded companies from making decisions that will benefit
their bottom line. On the other hand, political forces are typically not
allowed to affect the performance of private companies.
3. A private corporation may
increase its ability to compete in the market, which helps customers.
Privileges of Private Company:
Private firms are entitled to various benefits and exemptions under the
firms Act that are not available to public companies. They have more freedom to
manage their affairs thanks to these privileges. These are a few instances of
them: -
-Reports are not required to be prepared at yearly general meetings.
-There is a minimum need of 2 directors.
- They have the authority to establish new criteria for directors' disqualification and office/workplace vacation.
- In comparison to some other kinds of corporations, they are able to compensate their directors more.
Conversion of Private Company into Public Company[6]:
1.
Conversion by default: A private
corporation may only take advantage of these benefits and exemptions if it
complies with the conditions of its definition, which are outlined in section
2(68). "The company shall no longer be entitled to the privileges and
exemptions conferred by or under the act when a default is made in complying
with any of those provisions." The company would then be subject to the
entirety of the act as though it weren't a private enterprise.
2.
Choice-based conversion (section
14) A private corporation may choose to become a public company independently
of the aforementioned statute provisions. It may at any time adopt a special
resolution eliminating section 2(68) requirements from its article, and as of
the modification date, it becomes a publicly traded business. The prospectus
must be issued within 30 days, and all other act requirements—such as raising
the number of directors and shareholders to the statutory minimum—must be met.
Key Points of Difference between a Private Limited &
Public Limited Company:
1.
A corporation that is listed
on a reputable stock market and has its stocks listed in public may be a public
limited company. A private limited corporation, on the other hand, is not
traded or listed on a stock exchange. Only its members have individual
ownership of it.
2.
Seven members are the bare minimum
needed to form a publicly traded corporation. In contrast, a private limited
company may be founded with a minimum of two members.
3.
It is mandatory for a publicly
traded business to call a statutory general meeting of its members. In the
instance of a private corporation, there is no such requirement.
4.
When a firm is publicly traded, it
is required to provide a prospectus or statement. For a private corporation,
this isn't the case, though.
5.
To start operations, the public
business will need a certificate of commencement post incorporation. A private
firm, on the other hand, can begin operations as soon as it is incorporated.
6.
In a private limited business,
share transferability is completely controlled. In contrast, a public company's
stockholders are allowed to transfer their shares.
7.
A private limited company's scope
is restricted since there are fewer regulations and a restricted number of
individuals. On the other hand, a public firm has a wide scope. This is due to
the fact that the business's owners are subject to several legal constraints
and are able to raise funds from the general public.
8.
A public limited corporation faces
a greater load of regulations. This may be because a sizable amount of data
needs to be produced and made available to the public. A significant amount of
money must be invested in order to generate reports and disclosures that adhere
to SEBI regulations.
9.
A private limited company's
general meetings are held in order to get a signed written resolution.
10. Private
companies are not required to designate a company secretary; public
corporations are required to do so.
Role of Private Company in India[7]:
India, a
country with a mixed economy, has placed a high value on the private sector in
order to achieve rapid economic development. Within the domain of industry,
trade, and services, the government has assigned a specific function to the
private sector. India's most important industry, agriculture, along with
related industries like dairying, animal husbandry, poultry, etc., are entirely
controlled by the private sector. As a result, the private sector is crucial to
the management of the agriculture industry as a whole, ensuring that millions
of people have access to food.
Furthermore,
the private sector controls the majority of the commercial and industrial
sectors that are involved in non-strategic and lightweight manufacturing of a
variety of commodities, including electronics and electrical goods, cars,
textiles, food products, chemicals, and light engineering merchandise. The
aforementioned collection of sectors is developing and growing thanks in part
to the efforts of private companies. The growth of the nation's tertiary sector
involves the involvement of private firms as well. The whole system of services
that offer the public a variety of services is run by private businesses.
The private
corporation is also in charge of managing the nation's total wholesale and
retail trade in an extremely logical way. Furthermore, the majority of
transportation, particularly that which is done by road, is run by private
companies. Private businesses are being given far more responsibility in many
areas of economic activity as a result of the Indian economy's recent
deregulation.
Comparative Analysis of Public & Private Companies[8]:
1) Section 5: - Provision
of entrenchment in the Articles.
PRIVATE COMPANY:- To be
agreed and approved by all the members.
PUBLIC COMPANY:- To be
agreed and approved through a special Resolution.
2) Section 23: - Issue of
Securities
PRIVATECOMPANY:- By way of
right Issue and Bonus Issue through Private Placement.
PUBLIC COMPANY:- To Public
through Prospectus (“Public offer”) By way of Right Issue or Bonus Issue
through Private placement.
3) Section 29: - Public
officer to be is Dematerialized Form.
PRIVATE COMPANY:- Not
applicable for Private company.
PUBLIC COMPANY:- In case
of public offer of securities, the securities have to be in dematerialized
form.
4) Section 40: -
Securities in Public Offer to be listed in stock exchanges.
PRIVATE COMPANY:- Not
applicable to private company.
PUBLIC COMPANY:-
Securities offered in Public Offer, to be listed in Recognized stock exchanges.
5) Section 67: -
Restrictions on Purchase/Loan for Purchase of own Shares.
PRIVATE COMPANY:- Not
allowed to purchase its own shares.
PUBLIC COMPANY:- Not
allowed to purchase its own shares. No financial help to be given to purchase
its own shares.
6) Section 138: - Internal
Audit
PRIVATECOMPANY:-
Applicable in case of: - Turnover- Rs 200 crore in proceeding financial year.
PUBLIC COMPANY: - Applicable in case of: - paid up capital- Rs 50 Crore in the
proceeding financial year.
7) Section 134(3)(p): -
Annual Evaluation in the Board’s Report
PRIVATE COMPANY:- Not
applicable to private companies.
PUBLIC COMPANY:- If paid
up share capital is Rs. 25 Crore or more, the detail of annual evaluation in
the Board’s Report.
8) Section 149: - Number
of Directors and Independent Directors.
PRIVATE COMPANY:- Two
directors are required in private company.
PUBLIC COMPANY:- Number of
Director required in public company is 3; and In case of Listed companies, at
least one-third.
9) Section 152: -
Retirement by rotation – Appointment of directors
PRIVATE COMPANY:- Not
applicable.
PUBLIC COMPANY:- At least
two-third of total number of directors be liable to retire by rotation and
eligible of being re-appointed in AGM.
Significance of Companies in India[9]:
The adoption of more sophisticated technology and financial reforms are
responsible for the expansion of India's private sector. India has one of the
greatest GDP growth rates in the world, growing at a pace of 7–8% annually.
India's economic process has been spurred by the gap in light-emitting diode to
unrestricted flow of foreign direct investment (FDI) in conjunction with
stylish latest technologies. As soon as the market was made available for
investment, it altered. During this time, the number of Indian private
businesses that put the needs of their customers and prompt service first
increased. Competition between businesses in the same industry and even within
government agencies was further sparked by this. Additionally, the Indian
government sold off a number of its businesses to ensure the smooth operation
of these firms, which was otherwise were loss making.
Role of Private Companies in India’s Economic Growth[10]:
A
significant contributor to the nation's growth and economic development is the
private sector. Private businesses are primarily responsible for fostering
innovation, fostering competitiveness, generating funding, and creating
jobs—all vital components of economic expansion. The way that private
businesses, in particular, convert investment into wealth development and
income generation is through taking on entrepreneurial risk. This function
becomes even more important in the current environment, when growing
uncertainties in a world that is changing quickly raise concerns about economic
growth, especially for emerging,countries.
The growth rate of the Indian economy in 2018 was 6.8%. Increased
funding for private businesses boosts employment—both direct and
indirect—consumption, encourages further development, and has a multiplier
effect on the global economy.
The Indian
government has launched a number of initiatives to entice private investment,
particularly in the areas of higher education, skill development, airports,
industrial parks, and roads and highways.
The primary
goal of private businesses should be to create new business models that enable
technology to be used by employees in innovative ways. This will boost
productivity and aid in the transfer or dissemination of new technology through
industry-led initiatives. And sustained economic growth will result from this.
Conclusion:
Both public and private
businesses confront numerous obstacles to better coordination and collaboration
in their sustainability, but these may be overcome by creating common concepts
and ideas. When it comes to public sector enterprises adopting new objectives
and long-term ambitions, private businesses might have a big say. In this
instance, the data demonstrates that, generally speaking, private businesses
are better at setting precise objectives with quantifiable criteria for
assessment. In terms of how public corporations might convert nebulous and
nonspecific sustainability goals into more precise goals and actions targeted
at reaching certain outcomes, private enterprises could play a significant
role. Local governments and other public sector organizations may be able to
gain from utilizing insight from private sector firms gain shill regarding
framing goals in ways that allow for their improved evaluation and assessment.
Biblography:
Bare Act :The Companies Act, 2013
Book : Dr. N.V Paranjape (Company
Law), Avtar Singh (company law)
Website :https://www.mca.gov.in/content/mca/global/en/home.html/
,
http://legaldocs.co.in/blog/private-limited-company-vs-public-limited-company/
[1] https://www.mca.gov.in/content/mca/global/en/home/html
[2] The Companies Act, 2013
[3] Avtar Sing Company law (16th ed.)
[4] The Company Law Bare act
[5] Dr. N.V. Paranjape Company law (9th ed. 2018)
[6] Avtar Sing The company law (16th edtition)
[7] http://www.weform.org/agenda/2019/10/private-sector-investment-in-india/
[8] http://legaldocs.co.in/blog/private-limited-company-vs-public-limited-company/
[9] Misra S.K & Puri V.K (2010), Indian Economy, Himalaya, Mumbai
[10]http://www.weform.org/agenda/2019/10/private-sector-investment-in-india/
Article Information
COMPARATIVE ANALYSIS OF PUBLIC & PRIVATE COMPANIES & THEIR SIGNIFICANCE IN INDIAN ECONOMY BY:- ADV. AMARNATH NITIN HABIB
Authors: ADV. AMARNATH NITIN HABIB
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/04/22
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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