Company Law and Practice · Legal Status and Types of Registered Companies

Private Company, Public Company and One Person Company

Updated 11 October 2026 · Fact-checked

A private company has at least 2 members, restricts share transfer and bars public invitation to subscribe. A public company needs at least 7 members and has no such limits. A One Person Company has a single member and a nominee. A small company is a private company within prescribed capital and turnover limits. Answer by definition, minimum members, restrictions and conclusion.

Understand Private Company, Public Company and One Person Company

A company can be formed in different forms. The form decides how many people you need, whether you can raise money from the public, and how heavy the compliance burden is. The Companies Act, 2013 defines each form in section 2 and allows their formation under section 3.

A private company is built for closely held business. Its articles restrict the right to transfer shares, limit the number of members to 200 (not counting employee-members and certain ex-employee members) and prohibit any invitation to the public to subscribe for its securities. It needs at least 2 members and 2 directors. Because it is closely held, the law gives it many exemptions and relaxations.

A public company is any company that is not a private company. It needs at least 7 members and 3 directors. It has no maximum on members, its shares are freely transferable, and it may invite the public to subscribe for its securities. Being public does not mean being listed. A public company can stay unlisted.

A One Person Company (OPC) has only one member. That member must nominate another person, who takes over if the member dies or becomes incapable of contracting. Only a natural person who is an Indian citizen and resident in India can form an OPC or be its nominee, and a person cannot incorporate more than one OPC. An OPC cannot carry on non-banking financial investment activities. Check the current Rules for the exact eligibility and conversion conditions.

A small company is a private company whose paid-up capital and turnover do not exceed the prescribed limits (currently ₹4 crore and ₹40 crore). A holding company, a subsidiary company, a section 8 company and a company governed by a special Act cannot be a small company. Under section 446B, OPCs, small companies, start-up companies and Producer Companies face lower penalties.

Key rules to remember

Minimum members: Private company = 2; Public company = 7; One Person Company = 1; Members are the minimum required at incorporation. An OPC also names a nominee.
Maximum members: Private company ≤ 200; Public company = no limit; OPC = 1; For the private company limit of 200, employee-members and certain ex-employee members are not counted. Joint holders count as one member.
Minimum directors: Private = 2; Public = 3; OPC = 1; A One Person Company needs at least one director.
Three features of a private company: Restricts share transfer + limits members to 200 + prohibits public invitation to subscribe; These come from the articles and the definition. Mention all three in your answer.
Small company test: Private company AND paid-up capital ≤ ₹4 crore AND turnover ≤ ₹40 crore, but NOT a holding company, subsidiary company, section 8 company or company under a special Act; The limits are prescribed and can be revised, so state them as currently prescribed.
Lesser penalty under section 446B: Penalty = lower of (½ × specified penalty) and the cap; cap = ₹2,00,000 for the company, ₹1,00,000 for an officer in default or any other person; Applies to a One Person Company, small company, start-up company or Producer Company. The text reads 'not more than one-half' subject to the maximum.
Directorship limit (section 165): Maximum 20 companies in all; maximum 10 public companies; Alternate directorships count. Private companies that hold or are subsidiaries of a public company count toward the public limit of 10. A dormant company is not counted in the 20.
Penalty for breaching section 165: ₹2,000 per day after the first day of violation, maximum ₹2,00,000; It falls on the person who accepts the appointment in violation.

How to solve Private Company, Public Company and One Person Company questions

Use this order for any question on the types of company. It keeps your answer in the provision, facts, conclusion pattern.

1Identify the company type the question asks about: private, public, OPC or small company. If the type is not stated, work it out from the facts.
2State the definition in plain words and cite the Act (section 2 definitions, section 3 for formation) where you are sure.
3List the tests: minimum members, maximum members, minimum directors, restrictions on transfer and public invitation.
4Apply each test to the facts one by one. Write the figure from the facts next to the legal limit.
5If the facts involve capital or turnover, compare them with the small company limits and check the exclusions: holding or subsidiary company, section 8 company, special Act company.
6If penalties are involved, apply section 446B only when the company is an OPC, small company, start-up company or Producer Company. Compute half the specified penalty and then apply the cap.
7If the question is about changing form, say the articles must be altered by special resolution and the name changed, and file with the Registrar.
8Close with a one-line conclusion that answers the exact question asked.

Quickest way: Compare-the-numbers grid

When to use it: Use it when the question asks you to distinguish the types of company or to check whether a company qualifies as a type.

Write three columns: Private, Public, OPC.
Fill each row from memory: members (min and max), directors (min), transfer of shares, public invitation, name suffix.
Tick the facts in the question against the row that matters, and mark each fact as pass or fail.
For small company or penalty questions, run the numbers first: two limits for small company, half-and-cap for section 446B.
Write the conclusion in the first line, then the supporting points.

Common mistakes in Private Company, Public Company and One Person Company

Saying a private company can have unlimited members.
Students mix it up with the public company, which has no maximum.
Fix: Remember the pair: private company ≤ 200 members, public company no limit. Also state which members are excluded from the 200.
Treating a public company as the same thing as a listed company.
The word 'public' suggests shares are traded on a stock exchange.
Fix: A public company is defined by what it is not (not a private company) and by its freedom to invite the public. Listing is a separate step.
Calling any private company a small company.
Students remember the capital and turnover limits but forget the exclusions.
Fix: Check all tests: private company, paid-up capital within limit, turnover within limit, and not a holding company, subsidiary company, section 8 company or special Act company.
Applying section 446B to every company or giving the full penalty.
The section is read quickly and the cap is missed.
Fix: Apply it only to the four listed types. Take half of the specified penalty, then cap at ₹2,00,000 for the company and ₹1,00,000 for an officer in default or other person.
Forgetting the nominee in an OPC, or allowing a foreign national to form one.
Students focus on 'one member' and skip the eligibility rules.
Fix: State that the sole member names a nominee, and that the member and nominee must be natural persons who are Indian citizens and resident in India. A person cannot incorporate more than one OPC.
Counting a private subsidiary of a public company outside the limit of 10 public company directorships.
The word 'private' is assumed to keep it out of the count.
Fix: Under Explanation I to section 165, directorships in private companies that hold or are subsidiaries of a public company count toward the limit of 10 public companies.

Worked examples

Example 1

Alpha Foods Private Limited is a small company. It fails to comply with a provision for which the Act specifies a penalty of ₹5,00,000 on the company and ₹1,00,000 on every officer in default. What is the maximum penalty on the company and on the officer in default?

Show the solution

Section 446B applies because the company is a small company. Its officers in default are also covered.
For the company: half of the specified penalty = ₹5,00,000 ÷ 2 = ₹2,50,000.
The cap for a company is ₹2,00,000. Since ₹2,50,000 is more than the cap, the cap applies.
For the officer in default: half of ₹1,00,000 = ₹50,000.
The cap for an officer is ₹1,00,000. ₹50,000 is below the cap, so it stands.

Answer: The company is liable to a penalty of not more than ₹2,00,000. Each officer in default is liable to a penalty of not more than ₹50,000.

Example 2

Mr. Sharma is a director in 9 public companies and 8 private companies. None of the private companies is a holding or subsidiary company of a public company. He is invited to join the boards of 2 more public companies. Can he accept both? What if he accepts and the violation continues for 10 days?

Show the solution

Section 165(1) allows a person to hold directorship in at most 20 companies, and the proviso limits public companies to 10.
Current public companies: 9. Adding 2 gives 11, which is above the limit of 10 public companies.
Total companies would be 9 + 8 + 2 = 19. That is within 20, but the public company limit is still breached.
So he can accept only one of the two public company appointments, taking him to 10 public companies and 18 in total.
If he accepts in violation, section 165(6) applies. The penalty is ₹2,000 for each day after the first during which the violation continues.
For 10 days, the days after the first are 9. Penalty = 9 × ₹2,000 = ₹18,000, which is below the maximum of ₹2,00,000.

Answer: He cannot accept both, because he would hold 11 public company directorships against the limit of 10. He can accept one. If he accepts in violation for 10 days, the penalty is ₹18,000.

Exam tips

Questions often ask you to distinguish a private company from a public company. Use a short comparison on members, directors, transfer of shares, public invitation and name.
For OPC questions, write the nominee and eligibility rules. These are the points examiners look for.
Practise the small company test with numbers and the exclusions. Always state the limits as 'as prescribed'.
Do the arithmetic for section 446B and section 165 questions on paper. Show half, then the cap, then the conclusion.
For a conversion question, state the steps in order: special resolution altering the articles, name change, meeting the member and director minimums, and filing with the Registrar.

Practice questions from Legal Status and Types of Registered Companies

Private Company, Public Company and One Person Company: frequently asked questions

How do I convert a private company into a public company?

Pass a special resolution to alter the articles by removing the private company restrictions. Change the name by dropping the word 'Private', and make sure the company has at least 7 members and 3 directors. File the resolution and altered documents with the Registrar, who issues a fresh certificate of incorporation.

What is a small company under the Companies Act, 2013?

It is a private company whose paid-up capital and turnover do not exceed the prescribed limits, currently ₹4 crore and ₹40 crore. A holding company, a subsidiary company, a section 8 company and a company under a special Act are excluded.

What are the privileges of a private company?

A private company needs only 2 members and 2 directors and has many exemptions from provisions that apply to public companies. It also keeps control within a small group because share transfer is restricted. In return, it cannot invite the public to subscribe for its securities.

Who can form a One Person Company?

Only a natural person who is an Indian citizen and resident in India can form an OPC and be its nominee. The sole member must name a nominee. A person cannot incorporate more than one OPC.

Does the lesser penalty in section 446B apply only to small companies?

No. It applies to a One Person Company, small company, start-up company or Producer Company, and to their officers in default and any other person in respect of them. The penalty is not more than half of the specified penalty, up to ₹2 lakh for the company and ₹1 lakh for an officer in default or other person.