- A private limited company is a company with a minimum of two members and limited liability of its shareholders.
- The liability of each member is limited to the face value of shares held by him/her.
- It restricts the transfer of shares and limits the maximum number of members to 200.
- It cannot invite the public to subscribe for shares, debentures, or deposits.
- The company must use the word “Private” in its name and enjoys certain privileges under the Companies Act.
Definitions [6]
Define the following business entities:
Partnership
A partnership is a form of business in which two or more persons come together to carry on a business and share its profits and losses as per an agreed-upon partnership deed.
Definition: Partnership
- Section 4 of the Indian Partnership Act, 1932, defines partnership as ''Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.''
- According to Prof. Handy, "Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to earn private gain.
Definition: Private Limited Company
According to the Companies Act, 2013,
A private company is a company which, by its articles, restricts the right to transfer its shares, if any, limits the number of its members to 200, and prohibits any invitation to the public to subscribe for any shares or debentures of the company.
Definition: Public Limited Company
According to the Company Act 2013, A public company is a company that is not a private company and has a minimum paid-up capital as may be prescribed by the Act, and has the right to transfer the shares of a company.
Definition: Partnership
- Partnership is the relation existing between persons competent to make contract, who agree to carry on a lawful business in common with a view to private gain. - L. H. Haney
- A partnership or firm as it is often called is, then a group of men who have joined capital services for the prosecuting of some enterprise. - Kimball
- Partnership is the relation between persons who have agreed to share profits of a business carried on by all or any one of them acting for all. - The Partnership Act
- A Partnership is a form of business organisation in which two or more persons upto a maximum twenty join together to undertake some form of business activity. - J.L. Hanson
- Two or more individuals may form a partnership by making a written or oral agreement that they will jointly assume full responsibility for the conduct of business. - John Shubin
Definition: Sole Proprietorship
- The individual proprietorship is the form of business organisation at the head of which stands an individual as one who is responsible, who directs its operations and who alone runs the risk of failure. - L. H. Haney
- A sole proprietor is a person who carries on business exclusively by and for himself. He is not only the owner of the capital of the undertaking, but is usually the organiser and manager and takes all the profits or responsibility for losses. - James Stephenson
- Sole trader business is a type of business unit where one person is solely responsible for providing the capital, for bearing the risk of the enterprise and for the management of business. - J. L. Hansen
- Under the sole proprietorship form of ownership, a single individual organises and operates the business in his own name. He is not only responsible for its management but also for risks. - J. M. Shubin
- Sole proprietorship is a form of business where the individual proprietorship is the supreme judge of all matters pertaining to his business. - Kimball and Kimball
- Sole proprietorship is an informal type of business owned by one person. - J. L. Lundy
- The sole proprietorship is that form of business ownership which is owned and controlled by a single individual. He receives all the profits and risks all of his property in the success or failure of the enterprise. - B. O. Wheeler
Key Points
Key Points: Partnership
- Meaning: A partnership is when two or more people join to run a business and share profits as per a mutual agreement.
- Key Features: Based on agreement, profit-sharing, mutual agency, legal limit of 50 partners, and lawful business only.
- Nature: Treated as separate for accounting, but not legally—partners are personally responsible for the firm’s debts.
- Rights of Partners: Take part in business, share profits, check accounts, get interest on loans, and retire with notice.
- Liabilities: Unlimited; partners must use personal assets if needed and can’t keep personal gains made using the firm’s name/assets.
Difference between Private Company and Public Company
| Point of Difference | Private Company | Public Company |
|---|---|---|
| Number of members | Minimum 2, Maximum 200 | Minimum 7, No maximum limit |
| No. of directors | Minimum 2 directors | Minimum 3 directors |
| Prospectus | Not required to issue | Must issue prospectus or statement in lieu |
| Invitation to general public | Cannot invite public | Can invite public |
| Transfer of Shares | Transfer restricted | Free transfer allowed |
| Statutory meeting and report | Not compulsory | Compulsory |
| Index of members | Not compulsory | Compulsory |
| Legal formalities | Fewer legal formalities | More legal formalities |
Key Points: Sole Proprietorship
- Sole proprietorship is a form of business owned, managed, and controlled by one individual who receives all profits and bears all risks.
- There is no separate legal entity; the owner and the business are considered the same in the eyes of law.
- The proprietor has full control over decision-making and business operations.
- The business is usually small in size due to limited capital and managerial capacity of one person.
- The proprietor has unlimited liability, meaning personal assets may be used to pay business debts.
- It is easy to form and close, as very few legal formalities are required.
- The business lacks continuity because death, insolvency, or incapacity of the owner directly affects the business.
Key Points: Public Limited Company
- A public limited company is a company that is not a private company and requires a minimum of seven members, with no maximum limit.
- It does not restrict the transfer of shares and allows free transfer of securities.
- It can invite the general public to subscribe to its shares, debentures, and accept deposits.
- The liability of members is limited to the unpaid amount on shares held by them.
- A private company that is a subsidiary of a public company is also treated as a public company.
Difference Between Partnership and Sole Partnership
| Basis | Partnership | Sole Proprietorship |
|---|---|---|
| Governed by | Governed by Partnership Act, 1932 | No separate Act governs it |
| Number of formation | Minimum 2, Maximum 50 | Only one owner |
| Risk | Partners jointly bear the risk | Only proprietor bears all risks |
| Basis of formation | Formed by partnership deed | No agreement required |
| Decision making | All partners are consulted; decisions may be delayed | Quick decision; no need to consult anyone |
| Finance | Larger capital as all partners contribute | Limited capital from one person |
| Division of profit | Profit divided among partners | Entire profit goes to proprietor |
Key Points: Private Limited Company
Key Points: Partnership
- Partnership is a form of business where two or more persons agree to carry on a lawful business and share its profits and losses.
- It is created by an agreement (written or oral), usually recorded in a partnership deed which states rights, duties, and profit-sharing ratio.
- The business must be legal and carried on with the objective of earning profit.
- The relationship among partners is contractual, and only persons competent to contract can become partners.
- Every partner acts as both a principal and an agent, meaning each partner can bind the firm and other partners through his actions.
- The minimum number of partners is two and the maximum number is fifty (as per law).
