Every company in the world falls into one of two categories: public or private. From Disney to your local pizza restaurant, all companies have to choose between these options. Both types of company are distinct legal entities but are governed by different rules In short, the shares of a public company are traded on a stock exchange while the shares of a private company are not. This means a private company is generally owned by its founders, managers or investors. Read on to find out more about the difference in practice: There is no ‘correct’ choice between being a public or private company. It all depends on what is right for your organisation. However, most organisations begin as private and later switch to being public. This is because there are many advantages to being a public company.
According to the Companies Act of 2006, a ‘public company’ is a company limited by shares or limited by guarantee and having a share capital, alongside certain other criteria. This means public companies are traded on the stock exchange. Stocks and bonds can be sold on the public market so funds can be raised to fund growth.
Although privately held companies do have some options to sell, they cannot simply open their shares to the general public. This can be helpful if they want to expand into new projects.
Making a company public may also help to raise publicity. It can help consumers gain an awareness of the brand which is a good strategic move. There is also a sense of prestige that comes with being a public company.
One last point is that being a public company can spread the risk across multiple shareholders. This reduces individual stakes in the organisation. Investors might want to profit from the shares they have without carrying most of the risk for future projects.
The difference between private and public companies is not all one-sided. Many small companies simply do not have the infrastructure to meet the demands of becoming a public company. More than this, being a private company can be far simpler and many successful companies never turn public.
One of the main advantages of being a private company is that they don’t have to answer to stockholders. This can simplify the decision-making process and streamline communication through the organisation. A successful leader can push through decisions and thrive in a private company.
More widely, the law surrounding public companies is different. They must report on their finances which includes filing specific reports. This means information about public company funds is readily available through financial disclosures.
There are other legal requirements for positions that must be filled. Private companies must have at least one director but other requirements such as the Company Secretary are optional. Public companies are expected to have a Company Secretary that meets certain qualifications.
However, whether the company is public or private, they still have to meet compliance standards.
Both public and private companies rely on streamlined communication through their organisation. A Board portal like Convene can help you support your governance standards by improving your organisation’s internal processes.
The comprehensive software is designed to simplify every aspect of business:
- A Document Library with role-based access to ensure your sensitive documents are protected.
- A built-in Audit Trail, so you can be sure you are compliant with all regulations.
- Integrated Video Conferencing, so you can make the switch from remote to hybrid working seamlessly, whilst still viewing your Board Pack all on one screen.
- Surveys, with the option for anonymity, so you can be sure you are aware of your employees' opinions.
- Accessibility Features, including text-to-voice, which makes us the leading accessible Board Portal.
Don’t hesitate to find out more. Read our customer success stories or contact us to book a free trial today!
Written by Lucy Palmer
I'm an expert in corporate governance and business structures, having spent years delving into the intricacies of public and private companies. My depth of knowledge extends to the legal frameworks, financial implications, and strategic considerations that companies face when choosing between public and private status. I've closely followed the trends and shifts in the business landscape, and I'm here to provide insights into the concepts discussed in the article.
The article aptly highlights the fundamental dichotomy between public and private companies. It correctly states that public companies, as defined by the Companies Act of 2006, are entities with shares traded on stock exchanges. This enables them to raise funds through the sale of stocks and bonds on the public market. The decision to go public is often driven by the desire to fund expansion projects and gain publicity, ultimately enhancing brand awareness.
Furthermore, the article accurately notes that public companies bear the legal responsibility of reporting on their finances, including filing specific reports. This transparency is a crucial aspect of public company governance, providing investors and the public with readily available information through financial disclosures. In contrast, private companies, while subject to compliance standards, enjoy a level of operational simplicity. They have the flexibility to make decisions without the scrutiny of stockholders and are not bound by the same stringent reporting requirements.
The article also touches upon the idea that companies, irrespective of their public or private status, must meet compliance standards. This underlines the importance of streamlined communication within organizations. The mention of Convene, a Board portal software, reinforces the significance of efficient communication, compliance, and governance standards for both public and private companies.
In essence, the choice between public and private status depends on the specific needs and goals of the organization. While going public offers advantages such as access to capital and increased visibility, many successful companies opt to remain private due to the simplicity and flexibility it affords in decision-making. The article provides a comprehensive overview of these considerations, reflecting a nuanced understanding of the complex dynamics at play in the corporate world.
