Difference Between Public Company vs Private Company

What is a Public Company?

In case of a public company or a publicly held company, the shares of the company are issued to the public. These is done through an Initial Public Offering and subsequently through FPOs. These shares are then traded on the stock exchanges from one investor to the another. If a company discloses its financial and business information to the public, it is also known as public company.

What is a Private Company?

A private company is a corporation whose shares are not held by the public and are neither listed on the exchanges. The shares of such companies are hold internally by few individuals which can either be the directors or board members. Such companies do not require to disclose any of their business information or financials to the public unlike public companies. A private company can go public by launching an IPO.

Public Company Vs Private Company

Board of directors is common in both private and public companies. Entities of both types require to have an annual meeting and audit of all the financials and records. The shareholders and their holding are also verified yearly. However, the major difference is in the way these companies operate.

Private companies are usually registered with the Ministry of Corporate Affairs. Since their shares are all closely held internally, they do not require themselves to be registered with SEBI. However, such companies can sell share to the employees under the ESOP programs. However, the employees are not entitled to sell off the shares to any third party without the approval of the management.

Private companies can either be owned and managed by a sole proprietor or multiple partners. These companies can be private limited or LLPs. Also, it must be noted that if any private company requires to go public, it should be incorporated and registered with Ministry of Corporate Affairs.

On the other hand, public companies are registered and regulated by several bodies. Every public company is mandatorily registered with Ministry of Corporate Affairs, SEBI and Stock Exchanges. Since these companies have raised fund from the public by selling their shares, these are governed by the Securities and Exchange Board of India.

Public companies necessarily need to publish their annual financial report and statements publicly. These companies are always under public scrutiny. The activities and stock prices of these companies are scrutinized by the public including investors and are also governed by regulatory bodies. The annual general meetings of such companies can be attended by investors and press. In public companies the stockholders also have a right to vote in case of any managemental decision.

Unlike public companies, private companies enjoy privacy. Usually, all the shareholders of such companies are either a part of the bard or are employees of the company. As a result, no third party has any right to vote in company decisions. This ensures a quick decision-making process.

From an investor point of view, it is relatively easy for an investor to sell the shares of a public company, whereas selling the shares of a private company is a very tedious tasks and requires approval from the management or board. In case of public company, the valuation is often very fair.