What is a Public Company & How is it Different from a Private Company ?

Registration of Company in India under the Companies Act, 2013, one of the first decisions an entrepreneur must make is whether to register as a Private Company registration or a Public Company registration. While both structures provide limited liability and a separate legal identity, they differ significantly in terms of ownership, regulatory compliance, capital-raising options, and corporate governance requirements. A Public Company is one that is not a private company and may offer its shares to the general public, subject to certain conditions, while a Private Company restricts share transfers and limits the number of members. Understanding these distinctions is important for choosing the right corporate structure that aligns with a company’s business goals, investor preferences, and long-term growth strategy.

What is a Public Company?

A Public Company is defined under Section 2(71) of the Companies Act, 2013. Simply put, it is a company that: 

• Is not a Private Company, meaning it does not follow the restrictions applicable to private companies.

• Has a minimum paid-up share capital, as may be prescribed by the government. 

Authorized Capital is the maximum amount of capital that a company is legally allowed to issue.

Paid-up Capital is the actual capital received by the company from shareholders.

If a private company is a subsidiary of another company that is not a private company (i.e., a public company), it will be treated as a public company for all legal and compliance purposes—even if it still has private company clauses in its Articles of Association.

What is a Private Company?

A Private Company is defined under Section 2(68) of the Companies Act, 2013. It is a company that: 

• Has a minimum paid-up share capital, as may be prescribed*(There is no mandatory paid-up capital requirement, but a nominal authorized capital (Rs.1 lakh) is generally declared for registration purposes)

• Restricts the right to transfer its shares, meaning shareholders cannot freely sell or transfer their shares without following internal approval mechanisms.

• Limits the number of its members to 200:

• This count excludes:

• Employees who hold shares, and

• Former employees who became shareholders during employment and continue to hold shares even after leaving.

• Joint holders of shares are counted as a single member, not multiple.

• Prohibits any invitation to the general public to buy or subscribe to its shares or other securities (like debentures). 

*Previously, companies were required to have a minimum paid-up capital of Rs.1 lakh to register as a Private Limited Company under Section 2(68) of the Companies Act, 2013. The Companies (Amendment) Act, 2015 removed this requirement, allowing companies to incorporate with any amount of paid-up capital, even as low as Rs.1.

Key Features and Differences Between Private and Public Company

 A private company operates more closely and confidentially, whereas a public company is open to public investment and broader regulatory scrutiny. 

Therefore, while both public and private companies are legal entities registered under the Companies Act 2013, they differ in their ownership structure, transferability of shares, disclosure requirements, fundraising abilities, and management and control structures.

Is a common seal mandatory ?

Under the original provisions of the Companies Act, 2013, having a Common Seal was mandatory for companies. It served as the official signature of the company and was required for executing various legal documents, such as share certificates, powers of attorney, and agreements.

However, the Companies (Amendment) Act, 2015 brought a significant change, making the use of the Common Seal optional rather than mandatory, gave companies greater flexibility in executing documents and eased procedural formalities, especially for startups and small businesses.

If a company chooses not to have a Common Seal, then the documents that earlier required the seal can now be executed by: 

• Two directors, or

• One director and the company secretary, if the company has one. 

This change is aligned with the goal of simplifying compliance requirements and promoting ease of doing business in India.

Is Dematerialization Mandatory for Unlisted Public Companies?

Yes, dematerialization of Shares is mandatory for unlisted public companies in India under Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014. As per the Rule, every unlisted public company must: 

• Issue all securities only in dematerialized form on or after the applicability date; and

• Facilitate the dematerialization of all existing securities in accordance with the Depositories Act, 1996 and the rules and regulations made thereunder. 

Please note that the Unlisted public companies can no longer issue physical share certificates and must check that their entire capital—past and future—is in demat form through a recognized Depository Participant (DP).

Is Dematerialization Mandatory for Private Companies?

Yes, dematerialization for certain private companies under Rule 9B is now mandatory under the Companies (Prospectus and Allotment of Securities) Rules, 2014, as inserted by the Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023. As per Rule 9B, every private company, except a small company, is required to: 

• Issue securities only in dematerialised form, and

• Facilitate the dematerialisation of all its existing securities, 

Note: OPC, Small companies, Company limited by Guarantee are currently exempt from this requirement. 

Applicability of PAS-6  

Form PAS-6 is a half-yearly Reconciliation of Share Capital Audit Report, introduced by the Ministry of Corporate Affairs (MCA) to ensure transparency and proper tracking of shareholding in unlisted companies. It is a critical compliance requirement under the Companies (Prospectus and Allotment of Securities) Rules, 2014, applicable to both unlisted public companies and private companies (other than small companies).

Public Company 

The Government of India, Ministry of Corporate Affairs, notified an amendment to The Companies (Prospectus and Allotment of Securities) Rules, 2014 on 10th September 2018, making it mandatory for every unlisted public company to facilitate dematerialization of all its existing securities. MCA notified this on 23rd May 2019 that every unlisted public company is required to file Form PAS-6 (Reconciliation of Share Capital Audit Report) on a half-yearly basis. Through this amendment MCA also mandates that every unlisted public company 

• making any offer for the issue of any securities or buyback of securities or issue of bonus shares or rights offer shall ensure that the entire holding of securities of its promoters, directors, and key managerial persons has been dematerialized before making such an offer.

• Further, the amendment states that the transfer of securities on or after 2nd October 2018 shall be effected only if such securities are dematerialized before the transfer.

• who subscribes to any securities of an unlisted public company (whether by way of private placement or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities are held in dematerialized form before such subscription. 

Private Company 

The Government of India, Ministry of Corporate Affairs, notified an amendment to The Companies (Prospectus and Allotment of Securities) Second Amendment Rules, 2023 on 27^th October 2023, making it mandatory for every private company other than small company to facilitate dematerialization of all its existing securities. MCA notified that every private company other than small company is required to file Form PAS-6 (Reconciliation of Share Capital Audit Report) on a half-yearly basis. 

• A private company that is not a small company as per audited financials for the year ending 31st March 2023, must comply with Rule 9B within 18 months from the end of that financial year, i.e., such companies must comply by 30th September 2024.

• Producer Companies are granted an extended timeline of 5 years from 31st March 2023, i.e., up to 31st March 2028.

• As a further relaxation, other private companies (excluding Producer Companies), that are not small companies as on 31st March 2023, may voluntarily comply by 30th June 2025. 

Process of dematerialization of securities by unlisted Public Companies-

The complete process of dematerialization of securities involves converting physical share certificates into electronic form, making them tradable in a dematerialized or digital format. Here is a step-by-step process for dematerialization of securities:- 

• Obtain ISIN for the company: The first step is to obtain the International Securities Identification Number (ISIN) either with NSDL or CDSL through Registrar and Transfer Agents (RTAs).

• Open a demat account: The Second step towards dematerialization is to open a demat account with a Depository Participant (DP) registered with a Depository, either NSDL or CDSL.

• Submit demat request: The shareholder needs to fill out a dematerialization request form (DRF) available with the DP and submit the same along with the hard copy of share certificates to the DP.

• Verification: The DP verifies the details and forwards the DRF and share certificates to the Registrar and Transfer Agent (RTA) of the company.

• Confirmation: The RTA confirms the details of the share certificates and gives an electronic confirmation of the dematerialization request to the Depository.

• Credit to demat account: Once the confirmation is received, the Depository credits the shares to the demat account of the shareholder.

• Intimation: The Depository sends an intimation of the credit to the shareholder and updates the records of the company. 

Dematerialization of shares for unlisted public companies (Demat of Shares) makes it easier for investors to buy, sell, and transfer securities, reduces the risk of loss, and increases transparency in transactions.

Documents Required for dematerialization -

For obtaining ISIN for the Company, will be done through NSDL/CDSL and documents requirements may vary depending on the specific requirements of the depository participant or registrar and transfer agent like- 

• Certificate of Incorporation (COI) / Memorandum of Association (MOA) / Articles of Association (AOA) of the company

• Latest financial statements of the company, including balance sheet, profit and loss statement, Cash Flow Statement and notes to accounts

• PAN card copy of the company

• TAN number and GST registration certificate of the company

• PAN of all directors and Shareholders and authorized signatory

• Board resolution authorizing the authorized signatory to apply for ISIN/DEMAT registration on behalf of the company.

• Declaration for Freeze-Unfreeze of ISIN.

• Undertaking for a Private company.

• Networth certificate by a Practicing company Secretary/ Practicing Chartered Accountant

• Contact details of the authorized signatory, including name, email address, and phone number. 

Due Date for PAS-6 Filing

The due date for filing PAS-6 (Form for reconciliation of share capital audit report on a half-yearly basis) by unlisted public companies. As per Rule 9A of the Companies (Prospectus and Allotment of Securities) Rules, 2014 mandates that every unlisted public company must file the PAS-6 report with the Registrar of Companies within 60 days from the end of each financial year.

The due date for filing Form PAS-6 is 60 days from the end of the half-yearly period to which it pertains- 

PAS-6 is a form introduced by the Ministry of Corporate Affairs (MCA) through the Companies (Prospectus and Allotment of Securities) Amendment Rules, 2018, which was notified on September 10, 2018 and has been revised vide MCA notification dated 20^th January, 2023. The amendment introduced the requirement for all unlisted public companies and Private companies other than small Companies to file a PAS-6 form with the Registrar of Companies (RoC) for reconciliation of share capital audit. PAS-6 provides information about the changes in the share capital of an unlisted public company and Private Companies other than small Companies during the financial year, reconciling the total shares issued with the total shares held in dematerialized form with the depositories.

The PAS-6 form must be pre-certified by a practicing Company Secretary or a practicing Chartered Accountant and filed with the RoC within 60 days. The introduction of PAS-6 aims to ensure transparency and accountability in the share capital of unlisted public companies, and to bring them in line with the regulations applicable to listed companies.

Penalty for non-filing of PAS-6

Failure to file Form PAS-6 can attract the following penalties Under Section 450 of the Companies Act, 2013 (General Penalty Clause):

"If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made thereunder, for which no specific penalty or punishment is provided, they shall be punishable with fine which may extend to Rs.10,000, and where the contravention is a continuing one, with a further fine which may extend to Rs.1,000 for every day after the first during which the contravention continues."

MCA Adjudication Order for Non-Filing of Form PAS-6: Ispat Sheets Limited

The Registrar of Companies, North Eastern Region (Guwahati), issued an adjudication order dated 29th October 2024 in the matter of Ispat Sheets Limited (CIN: U27107AS1988PLC002877) for non-compliance with the mandatory provisions related to the dematerialization of securities under the Companies Act, 2013. As per the order (File No. ROC/GHY/ADJ/ISPAT/454/2024-25/501), the company failed to file Form PAS-6 as required under Section 29(1A) read with Rule 9A(8) of the Companies (Prospectus and Allotment of Securities) Rules, 2014.

The Ministry of Corporate Affairs had made it compulsory for every unlisted public company to issue and facilitate the dematerialization of all its existing securities, and to file Form PAS-6 with the Registrar of Companies every half-year along with the required certification from the Registrar and Transfer Agent (RTA). In this case, the default triggered adjudication proceedings under Section 454(3) of the Act. As there is no specific penalty prescribed for this violation, the matter was taken up under Section 450 of the Companies Act, 2013, which imposes fines on the company and its officers for contraventions where no specific penalty is provided. This case underscores the importance of timely compliance with PAS-6 filing obligations for unlisted public companies.

A significant observation from the NCLT Mumbai Bench in the matter of Amrex Marketing Pvt. Ltd. v. Harinagar Sugar Mills Ltd. further reinforces the legal stance: securities issued without dematerialisation are void ab initio, making dematerialisation a sine qua non (essential condition) for validity of share transactions. This reinforces the legal obligation, but also highlights the need for timely procedural facilitation by regulatory authorities.

While Section 29 of the Companies Act, 2013 does not directly mention private companies, the 2023 amendment under Rule 9B effectively includes them in the dematerialisation mandate. The lack of direct reference in Section 29 creates uncertainty on how penalties under Section 450 would apply to private companies. Legal professionals argue that while enforcement is justified, statutory clarity is still needed to prevent ambiguity in interpretation.

Conclusion 

While private companies have traditionally enjoyed greater flexibility and ease in compliance compared to public companies, the regulatory compliance is evolving. With the introduction of Rule 9B for Private Company and the mandatory filing of Form PAS-6, even private companies are now being brought under stricter compliance, particularly in relation to the dematerialisation of shares . 

On the other hand Public companies, having long been subject to high compliance disclosure and governance norms, are already accustomed to such regulatory expectations. However, for private companies, this transition demands increased awareness, timely action, and clarity from the authorities to check the smooth implementation. As India continues to improve the corporate governance and transparency, it is important that the compliance requirements strike a balance between accountability and practicality—allowing the companies to meet their obligations without being overburdened by procedural uncertainties.