Key takeaways
- A public company is a corporation whose ownership is distributed by the trade of shares in a stock exchange to the general public.
- A private company is privately held by owners and investors and does not offer its shares in the public market.
- A public company sells portions or all of itself to the public through an initial public offering.
- While a public company is accountable to the public and it’s expected to give regular feedback, a private company is not obligated to do likewise.
- A public company can easily raise funds in the financial market through the sales and transfer of stocks. A private company cannot easily pull that off.
What is a Public Company?
A public company is a company whose ownership is distributed by the trade of shares in the public market. A company is public when it has sold all or part of its ownership to the public through a process called Initial Public Offering (IPO). In a public company, stocks are freely traded on a stock exchange. They have access to the financial market and can easily access funds.
What is a Private Company?
A private company is a company whose ownership is privately held and limited to owners and stakeholders. The stocks and securities of a private company are not publicly traded on a stock exchange. Funds are usually raised through private and independent investments. The general public does not have access to a private company and it is not subject to the reporting requirements of the Securities and Exchange Commission (SEC).
Differences between a Public and Private Company
| S/N | Public Company | Private Company |
| 1. | The public holds ownership through freely traded stocks in the stock exchange market. | Ownership is privately held and limited to owners, stakeholders, and private investors. |
| 2. | It is listed on a stock exchange and can be traded freely. | It is not listed on a stock exchange. |
| 3. | It must be regulated by the standards of the SEC. | Except it meets certain conditions, it doesn’t have to be regulated by the SEC. |
| 4. | It generates funds through the sales of stocks and bonds. | It generates funds through independent investments from private investors. |
| 5. | It doesn’t have a limit on the maximum number of members. | The maximum number of members is limited to 50. |
| 6. | A public company is generally huge in size. | In comparison to public companies, private companies are usually small. But a big company can also be a private company. |
| 7. | It is required to give a financial report every fiscal year. | A financial report is only required if it is a large proprietary company. |
| 8. | There is limited flexibility as changes in objectives and policies require approval from the government. | It can easily make decisions and adjust policies to meet situational demands without the hassle of bureaucracy. |
| 9. | Shares are easily transferable in a stock exchange. | Shares in a private company are not easily transferable. |
Similarities between a Public and Private Company
- They both raise capital through the sales of shares.
- They are controlled by a board of directors.
- They both require more than one person to start.
- They both have separate legal statuses.
- They are owned by shareholders.
- Both are legal entities that can conduct business operations and generate profits
- Both can hire employees and pay taxes
- Both are subject to government regulations and must comply with laws and standards in their respective industries.
- Both take a minimum of 2 people to start in Nigeria.
Can a private company become a public company and vice versa?
Yes, a private company can become a public company and a public company can become a private company. For a private company to become a public company, it conducts an initial public offering and offers its shares to the public. A public company, on the other hand, can hire a private equity firm to buy a major portion of its outstanding shares and request the SEC to delist it from the stock exchange.
Does a private company make more money than a public company?
There are no specific metrics to measure the financial performance of companies based on whether they are publicly or privately owned. The financial growth of companies is determined by their individual performance in the market. While private companies are usually smaller than public companies, they can also do well competitively in the market.
Which is better: a public company or a private company?
Choosing a public or private company depends on the type of company you are looking to build and the resources available to you. They both have their individual strengths and weaknesses and knowing what works best for you will determine which you will go for.
Bottom Line
The main difference between public and private companies lies in their ownership. A public company is listed on the stock exchange and trades stocks to the general public who share ownership. A private company does not trade publicly and the public has limited access to it.
Whether a company chooses to go public or remain private depends on its goals, financial situation, and the preferences of its owners. Both types of companies have their own advantages and disadvantages, and it’s important to carefully consider these factors before deciding which path to take.
Did you learn something new from this article? Share with us in the comment section.
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GLOSSARY
