Understanding the difference between private and public companies is essential for anyone interested in the business world. In this guide, we’ll break down these differences into easy-to-understand points.
What is a Private Company?
A private company, or privately held company, is owned by a small group of investors or members. Unlike public companies, private companies do not sell their shares to the general public on stock exchanges. This means fewer people have ownership in the company.
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What is a Public Company?
A public company is one that offers its shares to the general public through a stock exchange. Anyone can buy and sell these shares. Public companies must follow strict regulations and regularly disclose their financial information to the public.
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Key Differences between Private and Public Companies
1. Number of Members
- Private Company: Can have 2 to 200 members.
- Public Company: Must have at least 7 members, with no upper limit.
2. Public Share Offering
- Private Company: Cannot invite the public to buy its shares.
- Public Company: Can invite the public to buy its shares.
3. Share Allocation
- Private Company: Shares are privately allocated to a small group.
- Public Company: Shares are available to the public through a stock exchange.
4. Business Operations
- Private Company: Can start business immediately after incorporation.
- Public Company: Must wait for a business commencement certificate.
5. Prospectus Requirement
- Private Company: Not required to issue a prospectus.
- Public Company: Must issue a prospectus to inform potential investors.
6. Share Transfer
- Private Company: Share transfers are restricted and need approval.
- Public Company: Shares are freely transferable on the stock market.
7. Articles of Association
- Private Company: Articles can be simple and flexible.
- Public Company: Articles must meet strict regulatory standards.
8. Bearer Share Warrants
- Private Company: Cannot issue bearer share warrants.
- Public Company: Can issue bearer share warrants.
9. Directors
- Private Company: Requires at least 2 directors.
- Public Company: Requires at least 3 directors.
10. Qualification Shares
- Private Company: Directors are not required to hold qualification shares.
- Public Company: Directors may need to hold qualification shares.
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Summary
In short, private companies are more restricted in their operations and share transfers, while public companies are open to public investment and must follow stricter regulations. Knowing these differences can help you decide which type of company is right for your business goals.
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FAQ on Difference between Private and Public company
What is the main difference between a private and a public company?
The main difference is that private companies do not offer their shares to the general public, whereas public companies do, and their shares are traded on stock exchange
Can a private company become a public company?
Yes, a private company can become a public company through a process called an initial public offering (IPO), where it offers its shares to the public for the first time.
Are there restrictions on transferring shares in a private company?
Yes, transferring shares in a private company usually requires approval from other shareholders and is subject to certain restrictions.
What are qualification shares?
Qualification shares are the minimum number of shares a director must hold in a public company as specified by the company’s articles of association.
How many directors are required for a private company versus a public company?
A private company requires at least 2 directors, while a public company requires a minimum of 3 directors.
Do public companies need to issue a prospectus?
Yes, public companies must issue a prospectus to inform potential investors about the company and the investment opportunity when they offer shares to the public.