Private Company Vs Public Company: Key Differences Explained

Dec 23, 2024
Private Limited Company vs. Limited Liability Partnerships

Are you an aspiring entrepreneur looking to start your own business? One of the crucial decisions you'll need to make is whether to structure your company as a private or public entity. Understanding the difference between private company and public company is essential for entrepreneurs, businessmen, and investors as it impacts ownership structure, funding, regulations, and operational transparency. 

Entrepreneurs and businessmen can choose the right structure for growth and compliance while investors evaluate risks, liquidity, and returns. Public companies are listed on stock exchanges, allowing easier capital access but with stricter compliance and disclosure requirements. 

Private companies offer more control and flexibility but limited fundraising options. This knowledge helps stakeholders make informed decisions regarding growth strategies, ultimately aligning their goals with the company's structure.

In this article, we'll dive deep into the characteristics of a private company and a public company, highlighting their key features, advantages, and differences. By the end, you'll have a clear understanding of which structure suits your venture best.

Table of Contents

What is a Public Company?

A public company, also known as a publicly traded company, is a corporation whose shares are freely bought and sold by the public on stock exchanges or over-the-counter markets. Key aspects of a public company include:

  • Unlimited number of shareholders.
  • Shares are publicly traded and easily transferable.
  • Must issue a prospectus before offering shares to the public.
  • Strict disclosure and reporting requirements.
  • Ability to raise substantial capital through public markets.
  • Governed by a board of directors responsible to shareholders.

Public companies must comply with stringent regulations set by securities commission like the the Securities and Exchange Board of India (SEBI). These regulations ensure transparency, protect investor interests, and maintain market integrity.

Features of Public Limited Company

  1. Free transferability of shares: Shares can be freely bought and sold on stock exchanges, providing liquidity to investors.
  2. No limit on number of shareholders: There is no restriction on the maximum number of shareholders a public company can have.
  3. Prospectus requirement: Public companies must issue a prospectus before offering shares to the public, disclosing key information about the company.
  4. Public disclosure of financials: Public companies are required to publicly disclose their financial statements on a regular basis.
  5. Strict compliance norms: Public companies are subject to stringent regulations and disclosure requirements set by governing bodies like SEBI.
  6. Access to capital markets: Public companies can raise substantial funds from a large pool of investors through various securities like IPOs, FPOs, rights issues and preferential allotments.
  7. Listing on stock exchanges: The shares of public companies are listed and traded on recognised stock exchanges.

What is a Private Company?

A private company, also referred to as a privately held company, is a business entity whose shares are not publicly traded. Ownership is closely held by a limited group of shareholders, such as founders, family members and private investors. Key characteristics of a private company include:

  • Limited to a maximum of 200 shareholders
  • Shares are privately owned and not freely transferable
  • Minimal disclosure requirements and greater privacy
  • Raising capital through private means like angel investors or venture capital
  • Closely controlled and managed by founders and early investors

Private companies have more flexibility in their operations and decision-making as they are not subject to the same level of public scrutiny and regulatory oversight as public companies.

Features of Private Company

  1. Restricted share transfer: Shares of a private company cannot be freely transferred and are subject to restrictions outlined in the company's articles of association.
  2. Limited number of shareholders: Private companies can have a maximum of 200 shareholders.
  3. No prospectus requirement: Private companies are not required to issue a prospectus to the public for raising funds.
  4. Confidentiality of financial information: The financial statements of private companies are not publicly disclosed and remain confidential.
  5. Fewer compliance requirements: Private companies have lesser compliance and regulatory filing requirements compared to public companies.
  6. Flexibility in management: Private companies have greater flexibility in their management structure and decision-making processes.
  7. No requirement for a statutory meeting: Private companies are not required to hold a statutory meeting or file a statutory report.

Public Company Vs Private Company

Following are the key differences between public and private companies:

Parameter Public Company Private Company
Ownership Shares are owned by the general public and can be freely traded on stock exchanges Shares are privately held by a limited number of shareholders
Share Transfer Shares can be freely transferred without restrictions Share transfer is restricted and subject to the consent of other shareholders or the company's articles
Number of Shareholders No limit on the number of shareholders Limited to a maximum of 200 shareholders
Prospectus Must issue a prospectus before offering shares to the public Not required to issue a prospectus for raising funds
Financial Disclosure Required to publicly disclose financial statements and reports Financial statements are not publicly disclosed
Compliance Subject to stringent compliance and regulatory requirements Fewer compliance requirements and regulatory filings
Access to Capital Can raise substantial funds from the public through capital markets Relies on private funding sources and has limited access to public capital
Management Separation of ownership and management, leading to potential agency problems Greater control and flexibility in management and decision-making
Valuation Determined by the market price of shares on stock exchanges Difficult to value in the absence of a public market for shares
Liquidity Shares are liquid and can be easily bought or sold on stock exchanges Shares are illiquid and not easily transferable

The choice between operating as a public or private company depends on various factors such as the company's capital requirements, desired level of control and flexibility, willingness to disclose financial information, and long-term objectives.

Can A Public Company Convert into a Private Company and Vice Versa?

Yes, a public company can be converted into a private company and vice versa, subject to certain conditions and procedures outlined in the Companies Act 2013.

To convert a public company into a private company, the following steps need to be taken:

  1. Pass a special resolution in a general meeting of the company to approve the conversion.
  2. Alter the company's memorandum and articles of association to reflect the changes required for a private company.
  3. File an application with the National Company Law Tribunal (NCLT) for approval of the conversion.
  4. Obtain approval from the NCLT after considering any objections or suggestions from regulatory authorities or other stakeholders.
  5. File the NCLT order approving the conversion with the Registrar of Companies (ROC) within 30 days.
  6. The ROC will issue a fresh certificate of incorporation reflecting the company's status as a private company.

Similarly, a private company can be converted into a public company by following these steps:

  1. Pass a special resolution in a general meeting of the company to approve the conversion.
  2. Alter the company's memorandum and articles of association to comply with the requirements of a public company.
  3. Increase the number of directors to the minimum required for a public company (3 directors).
  4. File an application with the ROC for approval of the conversion.
  5. Obtain approval from the ROC after ensuring compliance with all the necessary provisions.
  6. The ROC will issue a fresh certificate of incorporation reflecting the company's status as a public company.

Conclusion

Understanding the differences between private and public companies is crucial for entrepreneurs, investors and other stakeholders. While public companies offer the advantage of access to public capital and liquidity for shareholders, they also face stricter compliance requirements and public scrutiny. On the other hand, private companies provide greater control and flexibility to shareholders but have limitations in raising capital and providing liquidity to investors.

Regardless of the choice, both private and public companies play vital roles in the economy, driving innovation, creating jobs, and contributing to overall economic growth. Understanding their distinct characteristics and the implications of each structure is essential for navigating the complex world of business and making sound decisions.

Frequently Asked Questions

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Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What is a Public company?

A public company is a business entity whose shares can be freely bought and sold by the general public on stock exchanges. These companies are subject to stringent regulations and are required to disclose their financial information regularly.

What is a private company?

A private company is a business entity that is privately held and does not offer its shares to the general public. The ownership of a private company is limited to a small group of shareholders, and the shares are subject to transfer restrictions.

Can private limited companies issue shares?

Yes, private limited companies can issue shares to their existing shareholders or to new investors. However, the transfer of these shares is restricted and subject to the consent of other shareholders or the company's articles of association.

Is it better to be a private company or a public company?

The choice between being a private or public company depends on various factors such as the company's capital requirements, desired level of control and flexibility, willingness to disclose financial information, and long-term objectives. Each structure has its own advantages and disadvantages, and the decision should be based on a careful evaluation of the company's specific needs and goals.

Is it easier for public companies to raise capital than it is for private companies?

Yes, public companies generally have an easier time raising capital compared to private companies. 

Public companies can access a larger pool of investors by offering their shares to the general public through capital markets. They can raise substantial funds through various means, such as initial public offerings (IPOs), follow-on public offerings (FPOs), rights issues and preferential allotments. 

Private companies, on the other hand, rely on private funding sources such as promoter capital, venture capital, private equity, and debt financing, which can be more limited and challenging to secure.

Who can invest in a private company?

Investment in a private company is typically limited to a small group of shareholders, which may include the founders, family members, friends, and private investors such as angel investors, venture capitalists, and private equity firms. 

These investors are often accredited and have a higher risk tolerance compared to the general public. The shares of a private company are not freely traded on stock exchanges and are subject to transfer restrictions outlined in the company's articles of association or shareholder agreements.

Mukesh Goyal

Mukesh Goyal is a startup enthusiast and problem-solver, currently leading the Rize Company Registration Charter at Razorpay, where he’s helping simplify the way early-stage founders start and scale their businesses. With a deep understanding of the regulatory and operational hurdles that startups face, Mukesh is at the forefront of building founder-first experiences within India’s growing startup ecosystem.

An alumnus of FMS Delhi, Mukesh cracked CAT 2016 with a perfect 100 percentile- a milestone that opened new doors and laid the foundation for a career rooted in impact, scale, and community.

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Related Posts

Designated Partner in LLP: Role, Responsibilities, and Legal Requirements

Designated Partner in LLP: Role, Responsibilities, and Legal Requirements

A Designated Partner in an LLP (Limited Liability Partnership) is similar to a Director in a Private Limited Company but enjoys greater rights and privileges. Introduced under the Limited Liability Partnership Act, 2008, a Designated Partner is responsible for compliance, financial management, and legal matters in an LLP. This article explains the designated partner meaning, their role, responsibilities, and privileges, helping you understand their significance in an LLP.

Table of Contents

Who Can Be a Designated Partner in LLP?

Only individuals can be Designated Partners in an LLP. As per the Limited Liability Partnership Act, 2008, a minimum of two Designated Partners is mandatory, and at least one must be an Indian resident. This designation is crucial for ensuring legal compliance, managing financial responsibilities, and fulfilling statutory obligations within the LLP.

Who Can't Be a Designated Partner?

  • Undischarged insolvents
  • Individuals declared insolvent or who have withheld creditor payments in the last five years
  • Those imprisoned for six months or more for offences involving moral turpitude
  • Minors below 18 years

The Central Government holds the authority to annul these disqualifications if deemed necessary.

Designated Partner Identification Number (DPIN)

Every Designated Partner in an LLP must obtain a Designated Partner Identification Number , also referred to as a Director Identification Number (DIN). This unique number is mandatory for LLP registration and compliance. To obtain a DPIN, you need a Class 2 digital signature, which ensures secure authentication.

All partners in an LLP are eligible to become Designated Partners, but only those specified in the incorporation document hold this role at the time of registration. The LLP Partnership Deed allows rotation of the Designated Partner role, enabling different partners to take on responsibilities with mutual consent. This flexibility ensures equal participation while maintaining compliance with LLP regulations.

Documents Required for Becoming a Designated Partner

To become a Designated Partner in an LLP, you need to apply for a Designated Partner Identification Number. For this, you must submit the following documents:

  • Identity Proof – A self-attested or certified copy of a document that includes your photograph, date of birth, and father’s or husband’s name (such as an Aadhaar card, PAN card, or passport).
  • Residential Proof – A self-attested or certified copy of an address proof like a utility bill, bank statement, or rent agreement.
  • For Nominees of a Body Corporate – A resolution or authorisation letter from the company mentioning their name and address is needed.
  • For Foreign Nationals – A valid passport copy is needed.

Authorities for Attestation/Certification

Certain officials and professionals can attest or certify documents needed for a Designated Partner Identification Number . These include:

  • Gazetted officers from the Central or State Government
  • Notaries public
  • Practicing professionals like Company Secretaries, Chartered Accountants, or Cost and Works Accountants

While attesting documents, the authority must include their name in capital letters, registration number, ministry or department details, and an official seal or stamp. This ensures the documents are valid and accepted for DPIN approval.

Translation Certificate

If your documents are in a language other than Hindi or English, you must attach a translated copy. This translation must be certified and attested to meet compliance requirements. It ensures that authorities can verify the details correctly and process the application without delays.

Appointment of Designated Partner

At least two individuals must be appointed as Designated Partners when registering an LLP. If a Designated Partner leaves the LLP, a new one must be appointed within 30 days. Failing to do so will result in all partners being considered Designated Partners, which may lead to compliance issues. To complete the appointment process, the following forms must be submitted:

To appoint a Designated Partner, the following forms must be submitted:

  • Form 9 – This form records the consent of an individual to become a Designated Partner.
  • Form 4 – It contains details of individuals who have given their consent to take on the role.
  • Form 10 – This form is used to notify any changes made by the Designated Partners.
  • Form 5 – Every LLP must submit this form to the registrar, providing details of individuals who have consented to become Designated Partners. It must be filed within 30 days of the appointment.

Related Read: What is LLP Form 11?

Government Fee for Appointment of Designated Partner

The government charges a fee based on the LLP’s contribution when appointing a Designated Partner. The fee structure is as follows:

  • ₹50 – If the LLP’s contribution is up to ₹1,00,000
  • ₹100 – If the contribution exceeds ₹1,00,000 but is limited to ₹5,00,000
  • ₹150 – If the contribution exceeds ₹5,00,000 but is limited to ₹10,00,000
  • ₹200 – If the contribution exceeds ₹10,00,000

Related Read: Complete LLP Registration Fees Guide

Duties and Responsibilities of a Designated Partner

  • Signing the Statement of Account and Solvency: The Designated Partner must sign the Statement of Account and Solvency, confirming the financial position of the LLP. This document is crucial for transparency and is filed annually.
  • Filing Annual Returns on Time: It is the Designated Partner’s responsibility to ensure that the LLP files its annual returns within 60 days of the financial year’s closure. Late filing can result in penalties and legal complications.
  • Filing Additional Documents: The Designated Partner must submit any other documents requested by regulatory authorities to comply with legal requirements.
  • Cooperating with Inspectors: During investigations or inquiries, the Designated Partner is required to cooperate with inspectors, providing necessary documents and signing examination notes to verify accuracy.
  • Reimbursing Investigation Expenses: In the case of investigations, the Designated Partner is responsible for reimbursing the costs incurred, such as those related to audits or compliance checks.

Penalty for Not Having a Designated Partner

Every LLP is required to have at least two Designated Partners at all times. Failing to comply with this requirement incurs a penalty starting at ₹10,000, which can increase to ₹5,00,000.

If a Designated Partner exits the LLP and is not replaced within 30 days, the LLP will face similar penalties. Non-compliance with this rule can lead to legal and financial consequences, making it essential for LLPs to appoint and maintain the required number of Designated Partners.

Rights of a Designated Partner

Decision-Making Rights

A Designated Partner holds significant decision-making authority within an LLP. They are involved in making key business decisions, including formulating policies, setting operational strategies, and managing the financial aspects of the LLP. Their role is vital in ensuring that the LLP functions efficiently and adheres to its business goals.

Profit-Sharing and Financial Rights

A Designated Partner is entitled to a share of the profits generated by the LLP, with the exact share determined by the LLP agreement. This agreement outlines how profits and losses are distributed among the partners, ensuring that the Designated Partner receives a portion based on their involvement and the terms set forth.

Additionally, they have financial rights concerning capital contributions and can receive distributions and benefits according to the LLP's agreed financial terms.

Right to Access LLP Records and Documents

A Designated Partner has the right to access all official records and documents of the LLP. This includes financial statements, tax filings, agreements, and any legal documents related to the firm’s operations. This right ensures transparency within the LLP, allowing the Designated Partner to make informed decisions and stay updated on the company’s financial and legal status.

Liabilities of a Designated Partner

Liabilities in Case of Non-Compliance

A Designated Partner is responsible for ensuring that the LLP complies with all relevant legal requirements. Failure to comply with regulations such as filing annual returns or paying taxes can result in penalties, fines, and legal action that impacts both the LLP and the individual partner.

Legal and Financial Liabilities Under the LLP Act

Under the LLP Act, 2008, a Designated Partner may be personally liable if the LLP violates legal obligations. This includes non-payment of statutory dues, failure to meet regulatory requirements, or failure to comply with financial disclosures. In such cases, the Designated Partner is expected to take responsibility for rectifying the situation, with potential legal and financial penalties if the issue remains unresolved.

Situations Where Personal Liability May Arise

Although an LLP offers limited liability protection, there are circumstances where a Designated Partner could be personally liable. If involved in fraudulent activities, misrepresentation, or intentionally ignoring legal obligations, the Designated Partner may face personal liability. This could result in the loss of personal assets or legal actions separate from the LLP’s legal structure.

Frequently Asked Questions

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Register your Private Limited Company in just 1,499 + Govt. Fee

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Register your One Person Company in just 1,499 + Govt. Fee

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Register your Business starting at just 1,499 + Govt. Fee

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Register your Limited Liability Partnership in just 1,499 + Govt. Fee

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Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What is a designated partner in LLP?

A Designated Partner in an LLP is an individual who is appointed to manage the operations and compliance of the LLP. They are responsible for filing documents, ensuring annual returns are submitted, and managing financial and legal obligations within the business.

Who is eligible for LLP?

The eligibility to form an LLP in India is that there must be at least two partners, one of whom is an Indian resident. Partners must be between atleast 18 years of age, and both must agree to contribute capital. Additionally, obtaining a Digital Signature Certificate (DSC) and a Designated Partner Identification Number is mandatory.

What is the age limit for a designated partner?

There is no specific age limit for a Designated Partner in an LLP. However, a Designated Partner must be an adult, meaning at least 18 years old. Minors are not allowed to be Designated Partners.

What is the role of a designated member in an LLP?

The role of a Designated Partner in LLP includes signing important documents, managing the financial aspects of the LLP, ensuring legal compliance, and working on behalf of the LLP in official matters. They also handle registration, filing of annual returns, and cooperating during investigations.

Sarthak Goyal

Sarthak Goyal is a Chartered Accountant with 10+ years of experience in business process consulting, internal audits, risk management, and Virtual CFO services. He cleared his CA at 21, began his career in a PSU, and went on to establish a successful ₹8 Cr+ e-commerce venture.

He has since advised ₹200–1000 Cr+ companies on streamlining operations, setting up audit frameworks, and financial monitoring. A community builder for finance professionals and an amateur writer, Sarthak blends deep finance expertise with an entrepreneurial spirit and a passion for continuous learning.

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Authorized vs Paid Up Capital: Expert Guide to Company Registration [2025]

Authorized vs Paid Up Capital: Expert Guide to Company Registration [2025]

Starting a company in India has never been easier. You can begin with just ₹1,000 as paid-up capital. The Companies Amendment Act, 2015 eliminated the minimum capital requirement, making business ownership more available to everyone.

The difference between authorized and paid-up capital is vital to understand during company registration. Your authorized capital sets the maximum share capital limit for company issuance (like ₹10,00,000). The paid-up capital shows what shareholders have actually invested (say ₹1,00,000). This is a big deal as it means that your compliance needs, registration fees, and financial flexibility depend on these numbers.

Your paid-up capital must stay within the authorized capital limit - this creates a compliance boundary every business owner needs to follow. The authorized capital can increase through proper legal procedures, giving your business room to grow with future funding needs.

This piece will help you understand everything about authorized versus paid-up capital. You'll learn to pick the right amounts for your venture and create smart strategies to optimize your company's capital structure while keeping registration costs low.

Table of Contents

Understanding Company Capital Structure in 2025

Authorized capital is the maximum amount of share capital that a company is authorized to issue, while Paid-Up Capital is the actual amount of share capital issued and paid for by shareholders.

A company's capital structure forms the bedrock of its financial framework. This structure shows how a business funds its operations by mixing equity and debt to create a roadmap for growth and stability.

What is authorized capital and how is it defined in MOA?

Authorized capital (also called nominal or registered capital) sets the maximum share capital a company can legally issue to shareholders. The company's Memorandum of Association (MOA) clearly defines this limit under the Capital Clause.

This capital acts as a regulatory boundary. A private limited company with an authorized capital of ₹10 lakh can't issue more shares beyond this amount unless it changes its MOA. The company needs shareholder approval for this change and must file it with the Registrar of Companies within thirty days.

Paid-up capital meaning and its role in equity funding

Paid-up capital is the actual money shareholders give to a company when they buy shares. Unlike authorized capital, this represents real money in the company's accounts that it can use for business operations.

The 2015 Companies Act amendment removed the minimum paid-up capital requirement. Now entrepreneurs can start with just ₹5,000. This money proves valuable because you don't need to pay it back like a loan. The paid-up capital also shows the company's financial health, how much it relies on equity, and its loan repayment capacity.

Why capital structure matters during company registration

A well-laid-out capital structure shapes a new company's operations and growth potential. Your company's capital structure during registration affects:

  1. Financial flexibility - A smart capital structure lets you raise future funds without changing legal documents often.
  2. Risk assessment - Investors and lenders look at your capital structure to check financial stability.
  3. Registration costs - Your authorized capital amount decides the registration fees and stamp duty.

Companies should balance their original capital structure based on what their industry needs, how they plan to grow, and where they can get funding.

Authorized Capital vs Paid-Up Capital: Key Differences

Understanding the distinction between authorized capital and paid-up capital is fundamental to grasping a company's capital structure. This knowledge is crucial for effective corporate governance, regulatory compliance, and financial planning.

Legal Definitions and Compliance Framework

  • Authorized Capital is the maximum share capital a company is legally permitted to issue, as specified in its Memorandum of Association (MoA). This acts as a ceiling, ensuring that the company cannot issue shares beyond this limit without amending its foundational documents.
  • Paid-Up Capital is the actual amount of money received from shareholders in exchange for shares issued. By law, paid-up capital must always be less than or equal to authorized capital.

Impact on Share Issuance and Fundraising

  • Authorized capital represents the company’s potential for raising funds, setting the upper boundary for share issuance. It provides flexibility for future fundraising and expansion without the need for immediate regulatory changes.
  • Paid-up capital reflects the real investment made by shareholders and is the actual capital available for business operations. It is recorded in the company’s financial statements and directly impacts the company’s financial strength and investor confidence.

When a company reaches its authorized capital limit with paid-up capital, it faces two choices:

  • Increase authorized capital through a formal amendment to the MoA, requiring shareholder approval and regulatory filings.
  • Facilitate share transfers among existing and new shareholders, without increasing the total capital.

Capital Flexibility: Changes and Procedures

  • Authorized Capital: Can be increased or decreased by amending the MoA, which involves:
    • Reviewing the Articles of Association (AoA) for relevant provisions.
    • Passing a board resolution to convene a shareholders' meeting.
    • Obtaining shareholder approval via an ordinary or special resolution.
    • Filing statutory forms (such as eForm SH-7 and eForm MGT-14) with the Registrar of Companies within the prescribed timeframe.
  • Paid-Up Capital: Changes only when the company issues new shares or when existing shares are fully paid up. This directly affects the company’s liability for dividends and its operational capital.

Comparative Table: Authorized Capital vs Paid-Up Capital

Parameter Authorized Capital Paid-Up Capital
Definition Maximum capital allowed to be issued by the company Actual capital received from shareholders
Legal Reference Stated in MoA Reflected in financial statements
Purpose Sets fundraising potential and regulatory ceiling Represents real funds for business operations
Change Process Requires shareholder approval and legal filings Changes with issue and payment of new shares
Impact on Company Indicates growth capacity and future fundraising ability Shows current financial strength and equity base
Regulatory Role Determines ROC/government fees and compliance boundaries Used for daily operations and shareholder liability
Net Worth Does not determine net worth Forms part of the company's net worth

How to Decide Capital Amounts for New Companies

You need a well-laid-out approach to calculate the right capital amounts for your new company. This helps balance your current needs with future growth. Here's how you can break this down into four practical steps:

Step 1: Estimate operational and contingency needs

Start with a financing plan that shows your startup costs. Your plan should cover equipment purchases, premises costs, inventory, and working capital needs for your first 6-12 months. You'll need enough buffer money to handle unexpected expenses that could disrupt your operations. Capital projects always face uncertainties, so you should set aside a contingency fund—about 30% of your total estimated needs—to maintain financial stability. This fund serves as your safety net against future uncertainties.

Step 2: Set authorized capital for future scalability

After you figure out your requirements, you should set your authorized capital at 5-10 times your original paid-up capital. This gives you room to raise funds later without changing your MOA. To cite an instance, see how a ₹2 lakh immediate paid-up capital works better with ₹10-20 lakh authorized capital to create flexibility. Keep in mind that authorized capital sets your fundraising limit but doesn't represent actual money you can use.

Step 3: Determine paid-up capital based on shareholder commitment

Your shareholders' realistic contribution becomes your paid-up capital—the actual money invested in your company. Most startups work well with paid-up capital between ₹1 lakh and ₹5 lakh, based on what their industry needs. The final amount should match both your immediate operational needs and your shareholders' risk appetite.

Step 4: Consider ROC fees and stamp duty implications

The regulatory costs change with different capital amounts. ROC filing fees increase as your authorized capital grows—from ₹4,000 for capital under ₹1 lakh to ₹1,56,000 plus extra fees when capital exceeds ₹1 crore. The stamp duty (usually 0.15% of authorized capital) applies when you register or increase capital. A 2021 Supreme Court ruling made this duty a one-time payment with a maximum cap, whatever the future capital increases might be.

Case Study: Capital Planning for ABC Pvt Ltd

Let's get into how ABC Pvt Ltd planned its capital structure to balance current costs with future growth needs.

Original capital structure: ₹10 lakh authorized, ₹1 lakh paid-up

ABC Pvt Ltd set up its capital framework with ₹10 lakh authorized capital against ₹1 lakh paid-up capital. The company followed the post-2015 Companies Act amendment that removed the minimum paid-up capital requirement. This 10:1 ratio creates a perfect balance. It gives enough operational funds through actual investment while leaving room for future growth without needing regulatory changes.

ROC fee effects based on capital tiers

The company thought about how fees work at different capital levels. ABC Pvt Ltd kept its authorized capital at ₹10 lakh to avoid higher fee brackets. The ROC fee stays around ₹35,000 plus extra charges for authorized capital under ₹10 lakh. The company would pay much more if they go beyond this limit - ₹1,35,000 plus ₹100 per ₹10,000 for capital between ₹50 lakh and ₹1 crore.

Flexibility for future share issuance without MOA change

ABC Pvt Ltd can issue extra shares worth ₹9 lakh without changing its MOA. This difference between authorized and current paid-up capital gives them room to grow. Going beyond the ₹10 lakh mark would need shareholder approval, a board resolution, an extraordinary general meeting, and filing Form SH-7 with the Registrar within thirty days.

Cost-benefit analysis of higher authorized capital

The company's capital planning shows smart financial thinking. The ₹10 lakh authorized capital balances several factors:

Current savings: Lower ROC fees and stamp duty (usually 0.15% of authorized capital) Future flexibility: Room to issue extra shares worth ₹9 lakh without paperwork Credibility advantage: Better stability in the eyes of potential investors and partners

ABC Pvt Ltd shows how smart capital planning helps long-term business goals while keeping initial registration costs low. This matters a lot for new companies with tight budgets.

Frequently Asked Questions

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Private Limited Company
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1,499 + Govt. Fee
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  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

What is paid up capital with an example?

Shareholders provide paid-up capital to companies in exchange for shares. To cite an instance, XYZ Pvt. Ltd. issues 50,000 shares with a face value of ₹10 each. The paid-up capital would reach ₹5,00,000 when shareholders fully pay for all shares. This money becomes available for company operations and shows up in the balance sheet's equity section.

What is an example of authorized capital?

A corporation might decide to authorize 10,00,000 shares as specified in its Articles of Incorporation, with each share valued at ₹10. The authorized capital would equal ₹1,00,00,000 in this scenario. Companies can't issue more capital than this amount without changing their Memorandum of Association.

What is 1lakh paid up capital?

Shareholders' contribution of ₹1,00,000 to a company creates a paid-up capital of ₹1 lakh. The Companies Act required this amount as minimum paid-up capital for private limited companies before its 2015 amendment. This requirement no longer exists, though companies still need ₹1 lakh authorized capital.

How to calculate authorized capital?

The authorized capital calculation uses this formula: Authorized Capital = Number of Authorized Shares × Par Value per Share

A company with 1 lakh authorized shares at ₹100 face value would have an authorized capital of ₹1 crore.

What is the formula for paid up capital?

This formula determines paid-up capital: Paid-up Capital = Par Value of Shares + Additional Paid-in Capital

The calculation combines nominal value (face value × number of shares) with any premium above par value. A company that issues 100 shares at ₹10 par value but sells them at ₹15 each would have ₹1,500 paid-up capital (₹1,000 par value + ₹500 additional paid-in capital).

Mukesh Goyal

Mukesh Goyal is a startup enthusiast and problem-solver, currently leading the Rize Company Registration Charter at Razorpay, where he’s helping simplify the way early-stage founders start and scale their businesses. With a deep understanding of the regulatory and operational hurdles that startups face, Mukesh is at the forefront of building founder-first experiences within India’s growing startup ecosystem.

An alumnus of FMS Delhi, Mukesh cracked CAT 2016 with a perfect 100 percentile- a milestone that opened new doors and laid the foundation for a career rooted in impact, scale, and community.

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Which ITR Form is Applicable for a Company?

Which ITR Form is Applicable for a Company?

Filing an Income Tax Return (ITR) is mandatory for all companies in India, regardless of profit or business activity. Even if your company is dormant, you must comply with tax regulations. The applicable ITR form depends on factors such as income source, earnings, and business structure. Most companies file ITR-6, while ITR-5 is used for LLP companies and partnership firms. If you own a company, choosing the right ITR is essential to ensure compliance and avoid penalties. Proper company tax return filing helps meet legal obligations efficiently.

Table of Contents

Income Tax Return

An Income Tax Return is a document submitted to the Income Tax Department to report your income, deductions, and tax payments for a financial year. There are seven types of ITR forms, including ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, and ITR-6, each applicable to different taxpayers. Filing ITR before the due date is essential to avoid penalties and legal issues.

Applicable ITR Forms for Companies

The type of ITR for a company depends on its structure and income classification. Different business entities must file specific ITR forms to comply with tax regulations:

  • ITR-4: Suitable for firms (excluding LLPs) with income up to ₹50 lakhs under Sections 44AD, 44ADA, and 44AE.
  • ITR-5: Applicable for LLPs and partnership firms, except those required to file ITR-7.
  • ITR-6: Used by companies that do not claim tax exemptions under Section 11 (income from property used for charitable or religious purposes).
  • ITR-7: Mandatory for entities filing under Sections 139(4A), 139(4B), 139(4C), and 139(4D), such as trusts and political parties.

ITR-4 Form (Sugam) – For Firms Other Than LLPs

ITR-4 is designed for individuals, Hindu Undivided Families (HUFs), and partnership firms (excluding Limited Liability Partnerships) that opt for the presumptive taxation scheme under Sections 44AD, 44ADA, and 44AE. This scheme simplifies tax calculations for small businesses and professionals.

Applicability Criteria:

  • Eligible Taxpayers: Individuals, HUFs, and firms (excluding  Limited Liability Partnership) with business or professional income.
  • Residency Requirement: Only applicable to a resident other than not ordinarily resident.
  • Income Sources:
    • Business income under Section 44AD (small businesses).
    • Professional income under Section 44ADA (specified professions).
    • Income from goods transportation under Section 44AE.

In certain cases, if your business meets specific conditions, you may also need to submit Form 3CA/3CB and Form 3CD for a tax audit.

ITR-5 – For LLPs and Partnerships

ITR-5 is an income tax return form applicable to Limited Liability Partnerships, partnership firms, and other non-individual entities such as Associations of Persons (AOPs), Bodies of Individuals (BOIs), artificial juridical persons, and investment funds.

These entities must file ITR-5 to report their income, deductions, and tax liabilities to the Income Tax Department. Filing this form ensures compliance with tax laws and helps avoid penalties. However, companies required to file ITR-7 cannot use ITR-5 for tax filing.

ITR-6 – For Companies That Are Not Claiming Exemption Under Section 11

ITR-6 is an income tax return form for companies that are not claiming exemptions under Section 11, which applies to income from property held for charitable or religious purposes.

Filing ITR-6 accurately is compulsory for all companies that do not qualify for exemptions under Section 11. Timely filing is essential to avoid penalties and ensure compliance.

ITR-7 – For Companies

ITR-7 is an income tax return form for companies, firms, trusts, and other entities required to file returns under Sections 139(4A), 139(4B), 139(4C), and 139(4D) of the Income Tax Act, 1961. It applies to organisations that do not qualify for other ITR categories but must still comply with tax regulations.

Entities Required to File ITR-7:

  • Registered charitable or religious trusts
  • Societies and other institutions for charitable purposes
  • Educational institutions and universities
  • Scientific research associations
  • News agencies
  • Political parties registered under Section 29A of the Representation of the People Act, 1951
  • Bodies set up for religious or charitable purposes

Filing ITR-7 is essential for these entities to comply with tax laws, report income, and claim applicable exemptions.

Details Required in an ITR Form

The information required in an Income Tax Return form depends on the type of taxpayer and income sources. However, certain key details must be included in all ITR filings.

  • Personal Information: Name, PAN, date of birth, contact details, and residential address and other personal details.
  • Income Sources: Details of salary, business or profession, capital gains, rental income, interest, and other earnings.
  • Deductions & Exemptions: Deductions and exemptions include the tax benefits you claim under different sections of the Income Tax Act, 1961.
  • Tax Payments: Information on the taxes you have already paid, such as advance tax, self-assessment tax, and Tax Deducted at Source (TDS).
  • Foreign Assets & Income: If applicable, disclosure of overseas bank accounts, investments, and earnings.

Filing an ITR with correct details ensures timely processing and avoids unnecessary scrutiny from tax authorities.

Important Deadlines for Filing Company ITR

Due Dates for Filing ITR-6

  • If audit is required under the Income Tax Act – 31st October of the assessment year.
  • If a report in Form No. 3CEB (for international transactions) is required – 30th November of the assessment year.
  • If audit is not required – 31st July of the assessment year.

Due Dates for Filing ITR-7

  • For entities not requiring an audit – 31st July of the assessment year.
  • For entities requiring an audit – 30th September of the assessment year.

It is important to note that ITR filing deadlines may change based on updates or extensions announced by the Income Tax Department. You should stay informed about official notifications to avoid missing any revised due dates.

As per Section 234F, a late filing fee of ₹5,000 is applicable if the return is filed after the due date under Section 139(1). However, if the total income is ₹5 lakh or less, the penalty is reduced to ₹1,000.

Common Mistakes to Avoid While Filing Company ITR

Incorrect Form Selection

Selecting the wrong ITR form is one of the most frequent mistakes companies make. The type of ITR form a company must file depends on its structure and nature of operations. ITR-5 is applicable for LLP and partnership firms, whereas ITR-6 is meant for most companies except those claiming exemptions under Section 11. ITR-7 is required for entities like trusts and NGOs. Filing the incorrect form can lead to rejection or discrepancies in tax assessment.

Incomplete Financial Disclosures

A company is required to disclose all sources of income, deductions, and financial transactions in its ITR. Failing to provide complete details of revenue, expenses, capital gains, investments, liabilities, and foreign assets can result in tax penalties or audits. Accurate disclosure ensures that tax authorities have a clear understanding of the company’s financial position.

Missing Audit Report Submission

Companies that meet specific turnover or income thresholds are required to undergo a tax audit as per the Income Tax Act. If a tax audit is applicable, the company must submit the audit report before filing the ITR. Missing this step can lead to legal consequences, penalties, or delays in return processing. It is important to verify whether the company falls under the audit requirement and ensure timely submission of audit reports.

Frequently Asked Questions

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Register your Private Limited Company in just 1,499 + Govt. Fee

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Register your One Person Company in just 1,499 + Govt. Fee

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Register your Business starting at just 1,499 + Govt. Fee

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Register your Limited Liability Partnership in just 1,499 + Govt. Fee

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Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


One Person Company
(OPC)

1,499 + Govt. Fee
BEST SUITED FOR
  • Freelancers, Small-scale businesses
  • Businesses looking for minimal compliance
  • Businesses looking for single-ownership

Private Limited Company
(Pvt. Ltd.)

1,499 + Govt. Fee
BEST SUITED FOR
  • Service-based businesses
  • Businesses looking to issue shares
  • Businesses seeking investment through equity-based funding


Limited Liability Partnership
(LLP)

1,499 + Govt. Fee
BEST SUITED FOR
  • Professional services 
  • Firms seeking any capital contribution from Partners
  • Firms sharing resources with limited liability 

Frequently Asked Questions

Can a company file ITR-7?

No, a company cannot file ITR-7. This form is applicable only to entities such as trusts, political parties, religious institutions, and charitable organisations that are required to file returns under Sections 139(4A), 139(4B), 139(4C), or 139(4D) of the Income Tax Act.

Can a company file ITR-4?

No, ITR-4 filing is not meant for companies. It is designed for individuals, Hindu Undivided Families, and partnership firms (excluding limited liability partnership) that opt for the presumptive taxation scheme under Sections 44AD, 44ADA, or 44AE. Companies must file either ITR-5 or ITR-6, depending on their structure.

Is ITR-3 for business income?

Yes, ITR-3 is for individuals and HUFs earning income from a proprietorship business or profession that does not fall under presumptive taxation. It also applies to those with investments in unlisted shares or income as a partner in a firm.

Who should file ITR-1 and ITR-2?

  • ITR-1 (Sahaj): This form is for resident individuals with total income up to ₹50 lakh from salary, pension, one house property, and other income (like interest). However, if you have business income, you cannot file ITR-1.
  • ITR-2: This form is for individuals and HUFs who do not have income from business or profession but may have income from capital gains, multiple house properties, foreign assets, or high earnings.

Akash Goel

Akash Goel is an experienced Company Secretary specializing in startup compliance and advisory across India. He has worked with numerous early and growth-stage startups, supporting them through critical funding rounds involving top VCs like Matrix Partners, India Quotient, Shunwei, KStart, VH Capital, SAIF Partners, and Pravega Ventures.

His expertise spans Secretarial compliance, IPR, FEMA, valuation, and due diligence, helping founders understand how startups operate and the complexities of legal regulations.

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Basanth Verma
shopeg.in
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We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

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TBS Magazine
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Smooth onboarding, seamless incorporation and a wonderful community. Thanks to the #razorpayrize team! #rizeincorporation
Dhaval Trivedi
Basanth Verma
shopeg.in
Exciting news! Incorporation of our company, FoxSell, with Razorpay Rize was extremely smooth and straightforward. We highly recommend them. Thank you Razorpay Rize for making it easy to set up our business in India.
@foxsellapp
#razorpayrize #rizeincorporation
Dhaval Trivedi
Prakhar Shrivastava
foxsell.app
We would recommend Razorpay Rize incorporation services to any founder without a second doubt. The process was beyond efficient and show's razorpay founder's commitment and vision to truly help entrepreneur's and early stage startups to get them incorporated with ease. If you wanna get incorporated, pick them. Thanks for the help Razorpay.

#entrepreneur #tbsmagazine #rize #razorpay #feedback
Dhaval Trivedi
TBS Magazine
Hey, Guys!
We just got incorporated yesterday.
Thanks to Rize team for all the Support.
It was a wonderful experience.
CHEERS 🥂
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Dhaval Trivedi
Nayan Mishra
https://zillout.com/