Decision-Making and Management Structure: Private Limited Company vs. Public Limited Company
A private limited company is a closely held entity that necessitates the participation of a minimum of two or more individuals during its establishment. Conversely, a public limited company is publicly owned and traded, requiring a minimum of seven individuals for its establishment.
COMPARISON
Basic Comparison
Meaning
Private Limited Company
A private limited company is characterized by its absence from stock exchange listing, with shares held privately by its respective members.
Public Limited Company
A public limited company denotes a company that is listed on an officially recognized stock exchange and whose shares are openly traded by the general public.
Minimum Number of Member
2
7
Articles of Association
The transfer of shares in a private company is subject to limitations outlined in the Articles of Association, making them non-freely transferable.
In a public company, the shares are freely transferable, meaning they can be easily traded on a stock exchange, which serves as an open market for buying and selling shares.
Public Subscription
The public issuance of shares or debentures is not allowed.
It has the option to extend an invitation to the public for subscribing to its shares or debentures.
Issue of prospectus
Issuing a prospectus is not permitted.
The company has the flexibility to either issue a prospectus or choose private placement as an alternative option.
Minimum amount of allotment
The company can allot shares, without obtaining minimum subscription
The company cannot allot shares unless the minimum subscription stated in the prospectus is obtained.
Commencement of Business
Upon receiving a certificate of incorporation, the company is eligible to commence its business operations.
After the incorporation process, the company must obtain a certificate of commencement of business in order to commence its operations.
Appointment of Director
Two or more directors can be appointed by a single resolution.
One Director can be appointed by a single resolution.
Retirement of Directors by rotation
Directors are not subject to mandatory rotation and can hold permanent positions.
2/3rd of the total number of directors must retire by rotation
Place of Holding AGM
The choice of location for the AGM can vary depending on the company's preferences and the requirements of its stakeholders.
AGM is held at the registered office or any other place where the registered office is situated.
Statutory Meeting
Optional
Compulsory
Quorum
2 members who are personally present at the meeting, constitute a quorum, irrespective of the number of members
5 members are required to present in person when the number of members as on the date of the meeting is 1000 or less.
15 members are required to present in person when the number of members as on the date of the meeting is more than 1000 but less than 5000.
30 members are required to present in person when the number of members as on the date of the meeting is more than 5000.
Exemptions
Enjoys many privileges and exemptions
No such privileges and exemptions.
Incorporation Requirements
Minimum number of 3 directors are required to form a public company
Minimum 7 shareholders are required to form a public company.
Digital Signature Certificate (DSC) of any one director is required, in case self-attested copies of identity proof and address proof are submitted.
An application containing the object clause of the company is to be made
Director Identification Number (DIN) is a must.
Documents Required for Incorporation of Public Limited Company
Digital Signature Certificate (DSC) and Directors Identification Number (DIN) of all Directors
Copies of identity proofs such as Aadhar Card, Voter ID, PAN Card or passport of all directors
Passport size photograph of all Directors
If the registered office is set up in a rented property, a rental agreement and no objection certificate by the landlord are required.
If a registered office is set up in an owned property, ownership property documents are needed.
Utility bills of the business place
Incorporation of Company with a Foreign Director in India
Every company formed in India operates under the regulations of the Companies Act, 2013. According to this act, it is permissible for an Indian company to have a foreign director incorporated in India. The management of the company is entrusted to the Board of Directors (referred to as the "Board").
The composition of the Board allows for a mix of Indian residents and foreign nationals. However, it is mandatory for an Indian company to have at least one director who holds Indian citizenship. It is not permissible for the Board to consist entirely of foreign directors. Nonetheless, a foreign national can be appointed as either an executive or an independent director within an Indian company.
Director Under Companies Act, 2013
In accordance with the Companies Act, 2013, a director is defined as an individual appointed to serve on the Board of a company. Directors play a crucial role in managing the company's operations and are considered its leaders. Collectively, the directors form the Board of Directors.
The Board of Directors is entrusted with the responsibility of safeguarding the interests of the company's shareholders. They hold the authority to make strategic decisions, provide guidance, and oversee the overall functioning of the company. As per the Act, there are various types of directors who can be appointed within a company, including:
1. Managing Director: A director entrusted with substantial powers to manage the company's operations and make key decisions.
2. Executive Director: A director who is actively involved in the day-to-day operations of the company.
3. Independent Director: A director who brings unbiased judgment and expertise to the Board, without having any material relationship with the company.
4. Nominee Director: A director appointed by a specific entity, such as a financial institution or government, to represent their interests.
5. Woman Director: As per the Act, certain companies are required to have at least one woman director on their Board.
These different types of directors contribute their expertise and perspectives to ensure effective governance and successful management of the company. The Companies Act, 2013 does not impose restrictions on the appointment of foreign nationals as directors in Indian companies. Therefore, foreign nationals are eligible to be appointed as any of the aforementioned types of directors in Indian companies, provided they fulfill the necessary qualifications and criteria for the specific directorship. The Act recognizes the value of diverse perspectives and expertise that foreign nationals can bring to the Board, contributing to the effective governance and management of Indian companies.
Criteria to Become a Foreign Director in an Indian Company
To become a director in an Indian company, foreign nationals must meet certain criteria as outlined below:
1. Director Identification Number (DIN): A foreign national must obtain a DIN, which is a unique identification number issued by the Ministry of Corporate Affairs (MCA) in India. The DIN serves as a unique identifier for directors and is required for appointment to the Board.
2. Indian Citizenship: While foreign nationals can be appointed as directors, it is mandatory for an Indian company to have at least one director who is an Indian citizen. This requirement ensures that there is local representation on the Board.
3. Qualifications and Disqualifications: Like any director, foreign nationals must meet the qualifications and not fall under any disqualifications specified by the Companies Act, 2013. These qualifications and disqualifications pertain to factors such as age, mental capacity, criminal history, and bankruptcy.
4. Visa and Work Permit: Foreign nationals must comply with the visa and work permit regulations of India to legally work and serve as a director in an Indian company. They must obtain the necessary visa category and work permit that allows them to engage in business activities within the country.
By fulfilling these criteria, foreign nationals can be appointed as directors in Indian companies, contributing their expertise and perspectives to the governance and management of the company.
Compliances Under FEMA For a Foreign Director
Foreign nationals appointed as directors in Indian companies are entitled to receive remuneration, commission, and sitting fees on par with Indian directors. Consequently, they are required to comply with the provisions outlined in the Foreign Exchange Management Act (FEMA), 1999.
To serve as a director in an Indian company, foreign nationals must possess a valid employment visa. Additionally, they have the option to maintain a foreign currency account with a bank located outside India. This enables them to remit or receive their entire salary for their services as directors in the Indian company.
When Indian companies appoint foreign directors, they need to submit an application for remittance of their remuneration to authorized dealers. This application should be accompanied by an undertaking certificate and a statement concerning the payment of Income Tax.
Taxability of Income of a Foreign Director
The income earned by a foreign national as a director of an Indian company is taxable under the Income Tax Act, 1961. The required TDS will be deducted from their commission or remuneration as per the provisions of the Income Tax Act.
Under the Income Tax Act, a foreign national who is a director in an Indian company must obtain a PAN card mandatorily if he/she is having a financial transaction of Rs.2,50,000 or more in a financial year.
Though there is no bar on the appointment of foreign directors in an Indian company, they must follow the provisions under the Companies Act, 2013, Income Tax Act, 1961 and FEMA, 1999.
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