The Key Differences Between Public Companies and Private Companies
When it comes to operating a business, one of the major decisions company owners need to make is determining whether to keep their company private or take it public. While both types of companies are structured similarly, there are a few key differences between them. In this article, we’ll explore some of the differences between public companies and private companies.
Ownership Structure
One of the main differences between public and private companies is the ownership structure. Private companies are owned by a group of individuals or a single individual. Their shares cannot be listed on a stock exchange and are not available to the general public. In contrast, public companies are owned by shareholders who can buy and sell company shares. Public companies are also required to meet certain regulatory requirements, such as filing quarterly and annual reports, which private companies are not required to do.
Disclosure Requirements
As mentioned earlier, public companies are required to provide regular disclosure of financial information to the public. This includes quarterly and annual reports, which are available for public access. The Securities and Exchange Commission (SEC) regulates public companies and enforces standard regulations to ensure the accuracy and completeness of financial statements. Private companies are not bound by such regulations and do not have to disclose their financial information to the public. Hence, they have a greater degree of privacy.
Size & Scope
Public companies are generally larger than private companies in terms of size and scope. This is because they need to have a minimum size to make sure that their shares can be traded. At the same time, public companies can raise more capital by selling shares to the public. Private companies, on the other hand, are typically smaller and have a limited capital base. Hence, the ability to raise funds is constrained.
Management Structure
Public companies are typically managed by a board of directors who are elected by the shareholders. These directors are responsible for making key decisions that impact the company’s operations. Private companies, on the other hand, are usually managed by the owner and a small team of key employees. Decisions are usually made by a single individual or a small group of people, making the decision-making process much more streamlined.
Risk vs. Reward
Going public can be a risky decision for companies. While it can provide access to capital, it also exposes the company to the scrutiny of the public eye. In contrast, private companies are not subject to the same level of public scrutiny and can operate with more ease. However, private companies have lesser access to capital, as they cannot sell shares to the public. Hence, they have to rely on other sources of financing, such as loans or investments.
Wrapping Up
In conclusion, both public and private companies have their pros and cons. While some companies prefer the privacy and control of a private company, others may want to pursue the opportunities provided by a public company. Ultimately, the decision of becoming a public or private company lies in the hands of the business owner and the strategic vision of the company.
Table difference between public company and private company
| Public Company | Private Company | |
|---|---|---|
| Ownership | Owned by shareholders who can trade their shares on public stock exchanges. | Owned by a small group of individuals or a single entity. |
| Regulation | Subject to greater regulatory scrutiny and reporting requirements from government agencies and stock exchanges. | Subject to less regulatory scrutiny and reporting requirements. |
| Access to Capital | Can raise capital through public stock offerings and attract a larger pool of investors. | Restricted access to capital as they cannot offer shares to the public. |
| Financial Reporting | Must file periodic financial reports (such as annual reports) with the Securities and Exchange Commission (SEC) and other regulatory bodies. | Less stringent financial reporting requirements. |
| Board of Directors | Usually has a larger board of directors representing a diverse group of stakeholders. | Usually has a smaller board of directors consisting of insiders or close associates of the owner(s). |