Context
Tata Sons, the principal holding company of the Tata Group and an Upper Layer Non-Banking Financial Company (NBFC), has faced regulatory requirements regarding stock-exchange listing. The issue highlights the important distinction between public, private and listed companies under Indian corporate law.
Public vs Private Company
Under the Companies Act, 2013, the key distinction is based on share transfer, public subscription and ownership structure.
| Basis | Private Company | Public Company |
| Meaning | Shares are held privately and not listed on a stock exchange. | Can raise capital from the public, subject to applicable law. |
| Members | 2–200 | Minimum 7; no statutory maximum |
| Directors | Minimum 2 | Minimum 3 |
| Share Transfer | Restricted by its Articles of Association (AoA) | Generally, freely transferable |
| Public Subscription | Cannot invite the public to subscribe to securities | Can invite the public through mechanisms such as IPO, subject to securities laws |
| Listing | Cannot be listed on a stock exchange | May be listed or unlisted |
| Prospectus | Cannot issue a prospectus for a public offer | Prospectus required when making a public offer, as prescribed by law |
| Regulatory Compliance | Lower regulatory burden and compliance with the Ministry of Corporate Affairs (MCA). | High regulatory burden; must comply with both MCA and Securities and Exchange Board of India (SEBI) norms. |
| Disclosure & Compliance | Relatively lower public-disclosure requirements | Higher disclosure and compliance requirements, particularly when listed |
| Name | “Private Limited” (Pvt. Ltd.). | “Limited” (Ltd.). |
| Every public company is not listed but every listed company is a public company. | ||
Additional Information: Non-Banking Financial Companies (NBFCs)
- Meaning: NBFCs are companies engaged in financial activities such as lending, investment and credit intermediation, but they are not banks. They supplement banks as a source of credit.
- Regulator: NBFCs are primarily regulated and supervised by the Reserve Bank of India (RBI) under the RBI Act, 1934 and applicable regulations.
- Scale-Based Regulation (SBR): RBI classifies NBFCs into four layers based on their size, activities and systemic risk:
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- Base Layer (NBFC-BL): Relatively smaller and lower-risk NBFCs.
- Middle Layer (NBFC-ML): Larger NBFCs and specified entities such as Housing Finance Companies (HFCs) and Core Investment Companies (CICs).
- Upper Layer (NBFC-UL): NBFCs identified by RBI as requiring enhanced regulation; the top 10 eligible NBFCs by asset size are placed here.
- Top Layer (NBFC-TL): Normally remains empty but may be used if an NBFC poses substantial systemic risk.
- Higher Regulation: NBFC-ULs face stricter requirements relating to capital, governance, risk management and disclosures. For instance, they must maintain at least 9% Common Equity Tier-1 (CET1) capital of risk-weighted assets.
FAQs
Q1. Is every public company listed on a stock exchange?
Ans. No. A public company can be listed or unlisted. Listing is not an automatic consequence of being a public company.
Q2. Can a private company invite the general public to subscribe to its shares?
Ans. No. A private company cannot make a public offer of its securities and restricts the transfer of its shares.
Q3. Does a company’s large size make it a public company?
Ans. No. Company size does not determine its legal classification. A large business can also be organised as a private company.
Q4. Which laws govern public and private companies in India?
Ans. Both are primarily governed by the Companies Act, 2013, along with applicable securities and financial-sector regulations.
