The difference between public and private company lies in various key aspects such as ownership structure, regulations, funding sources, and stock trading. Public companies offer shares of the company to the general public through a stock exchange; private companies are owned in private and do not sell shares on the public exchanges. To know this differentiation is vital for business entrepreneurs, investors, and every individual who wants to find out more about the world of corporates. The article here is going to break it all down for the differences in definitions and, therefore, in their operation.
What is Public Company?
A public company is a business entity whose shares are traded on the stock exchange and can be purchased by the general public. These companies are typically larger, have a significant number of shareholders, and are subject to strict regulations enforced by government agencies like the Securities and Exchange Commission (SEC). The ownership of public companies is divided among public shareholders, and anyone can buy shares in the company, making them more transparent.
Key Features of Public Company
Public companies are organizations whose shares are publicly traded on stock exchanges, allowing them to raise capital and operate under strict regulatory oversight. They feature a governance structure led by a board of directors to manage operations and protect shareholder interests.
- Shares are publicly traded: A public company’s shares are listed on a stock exchange (e.g., NSE, BSE), meaning the general public can buy and sell them.
- Strict regulatory compliance: Public companies are required to disclose their financial statements, quarterly earnings, and any material events that may impact shareholders.
- Access to capital: Public companies can raise significant amounts of capital through the sale of shares or bonds, enabling them to fund large projects or expansions.
- Governance structure: Public companies typically have a board of directors elected by shareholders to oversee the company’s operations.
What is Private Company?
A private company is a business entity that is owned by a small group of investors or a single entity. These companies do not sell shares to the public, and they are not required to disclose their financial information or comply with the same level of regulatory oversight as public companies. The ownership of a private company is usually confined to its founders, management, or a small group of investors.
Key Features of Private Company
Private companies are privately owned businesses with a limited number of shareholders and no public trading of shares. They enjoy greater control and face fewer regulatory requirements compared to public companies.
- Limited ownership: Private companies typically have a small number of shareholders, and ownership is not open to the public.
- No public trading of shares: Shares of a private company are not available on stock exchanges, meaning they cannot be easily bought or sold by the general public.
- Less regulatory burden: Private companies have fewer reporting requirements compared to public companies, and they are not required to disclose financial information to the public.
- Greater control: Founders and owners retain greater control over decision-making since there are fewer shareholders to answer to.
Difference Between Public & Private Company
The difference between public and private companies can be seen in several critical aspects that affect ownership, funding, operations, and regulation. Here are five key differences:
Ownership and Shareholding
- Public Company: Shares of a public company are available for purchase by the general public. Anyone can buy stock in the company on a stock exchange.
- Private Company: Shares are owned by a select group of investors, which can include the company’s founders, management, or a few private investors.
Regulatory Requirements
- Public Company: Public companies are subject to extensive regulatory oversight. They must comply with strict reporting requirements set by bodies like the SEC, including quarterly and annual financial disclosures.
- Private Company: Private companies have fewer regulatory obligations. They are not required to disclose financial information or file reports with government agencies.
Access to Capital
- Public Company: Public companies can raise large amounts of capital by issuing new shares or bonds. This provides them with significant resources for expansion and investment.
- Private Company: Private companies rely on private investors, loans, or venture capital for funding, which can limit their capital-raising ability compared to public companies.
Market Visibility
- Public Company: Public companies enjoy high visibility due to their shares being listed on public stock exchanges. They are more likely to be recognized by customers, investors, and business partners.
- Private Company: Private companies have limited market visibility and generally rely on word-of-mouth, direct sales, or private networks for business growth.
Control and Decision-Making
- Public Company: Decision-making in public companies may be influenced by the shareholders and board of directors. The founders or management may not have total control over operations.
- Private Company: Private companies offer more control to the founders or a small group of owners. The decision-making process is more centralized and can be more agile.
| Aspect | Public Company | Private Company |
| Ownership & Shareholding | Shares are available for purchase by the public on stock exchanges. | Shares owned by a select group (founders, management, or private investors). |
| Regulatory Requirements | Subject to extensive regulations (e.g., SEC reports, quarterly/annual disclosures). | Fewer regulations; not required to disclose financial info publicly. |
| Access to Capital | Can raise large capital through issuing shares or bonds. | Relies on private investors, loans, or venture capital. |
| Market Visibility | High visibility due to stock exchange listing. | Limited visibility; relies on private networks and word-of-mouth. |
| Control & Decision-Making | Shareholders and the board influence decision-making. | More centralized control; decision-making is agile and often in the hands of founders. |
Public companies are open to anyone and are subject to extensive scrutiny, which provides access to large-scale funding but comes with the loss of some control. In contrast, private companies are typically more closely held and less regulated, giving founders more control but limiting their ability to raise capital from the public. Deciding between a public and private company structure depends on a business’s needs, growth strategy, and level of control desired by its owners.
Private Company vs Public Company FAQs
What is the main difference between a private company and a public company?
The key difference is that public companies offer their shares to the public through stock exchanges, while private companies are privately owned and do not offer shares to the public.
How do private companies and public companies differ in terms of regulation?
Public companies face stricter regulatory requirements, including financial disclosures and compliance with securities laws. Private companies have fewer regulatory obligations and do not need to disclose their financials publicly.
Is the difference between private and public companies significant for investors?
Yes, the difference is significant. Public companies make it easy for investors to buy and sell shares, while private companies are more difficult to invest in because they don’t list shares publicly.
What are the ownership differences in private and public companies?
In a public company, ownership is spread among many shareholders who can buy or sell shares on the stock exchange. In a private company, ownership is held by a small group of investors or the company’s founders.
Why do private companies stay private instead of going public?
Private companies may choose to stay private to retain greater control over decision-making, avoid public reporting costs, and maintain privacy regarding financial details.
