Liabilities & Rights of Promoters

A promoter of a company cannot be considered as an agent of the company as the company is not in existence during promotion. A promoter is not a trustee of the company. A promoter cannot make any secret profit.

Formation of a Company

The following things are required for the formation of a company.

  • Promoters are required.
  • Objectives of the promoters must be laid down.
  • The names of the promoters must be subscribed to the memorandum of the company.
  • The promoters must comply with the Company Act, 1956.

Private companies and public companies having a share capital can immediately start business after the certificate of registration is issued by the registrar. The incorporation of a company takes approximately 35 days in India. Public companies can offer their shares for sale to the public. The minimum share capital for a public company to be incorporated must be INR 50,000. A private company places certain restrictions on ownership.

For the formation of a company, a company passes through the following three stages −

  • Promotional stage
  • Incorporation stage
  • Commencement of business

Private Company and Public Company

  • The director of a private company may not be specifically qualified. A private company may have only one director who can also be the only shareholder.

  • A public company must have at least 2 directors and 2 shareholders.

  • A private limited company can use its resources to purchase the shares of the company when someone wishes to leave the company.

  • A private company cannot offer any securities of the company to the public.

  • Public companies are able to sell their shares to the public.

To differentiate public companies and private companies, the following factors are taken into consideration −

Minimum Number of Members

A minimum number of 7 members and a minimum number of 2 members are required for a public company and a private company respectively.

Maximum Number of Members

A private company can have 50 members at maximum whereas there is no limit for public companies.

Commencement of Business

A public company needs a Certificate of Commencement for commencement of business whereas, a private company can commence business after the certificate of registration is issued.

Invitation to the Public

A public company can invite the public to buy shares whereas a private company cannot sell its shares to the public.

Transferability of Shares

There is no restriction on a shareholder of a public company to transfer shares. Shareholders of private companies are restricted from transferring shares.

Number of Directors

A private company can have at least 1 director but a public company must have at least 2 directors.

Statutory Meeting

A public company must hold a statutory meeting and file a statutory report with the registrar. There is no such obligation for a private company.

Restrictions on the Appointment of Directors

A director of a public company should file his consent with the registrar. He cannot vote or participate in any discussion on a contract on which he is interested.

Managerial Remuneration

For a public company, the remuneration payable to a manager cannot exceed 11% of net profits. A minimum of INR 50,000 can be paid at the time of inadequacy of profit. Private companies do not face these restrictions.

Further Issue of Capital

A public company must offer further issue of shares to its existing members. A private company on the other hand is free to allot new issue to outsiders.


Private companies are required to have the suffix ‘Private Limited’ at the end of their names. A public company is required to have the suffix ‘Limited’ at the end of its name.