Differences Between A Private Company And A Public Company: Definitively, a Company can be said to be a formal organization that is formed by a group of person’s or an individual (in the case of a private company) for the purpose of carrying on business. A company is incorporated in line with certain rules and regulations provided by the the laws guiding it’s incorporation like the CAMA in Nigeria. After incorporation, the company attains the position of a natural person with rights and liabilities. There are quite a number of similarities between the two major types of companies which are public and private company.
Notwithstanding the similarities, we will focus on some of the differences between them and they are discussed below.
Differences Between A Private Company And A Public Company
1. BUYING AND SELLING OF SHARES: One of the striking difference between a public company and a private company is that, while a public company can comfortably quote and sell it’s shares to the members of the public as allowed by the extant laws in the country, private companies cannot quote and sell their shares to the members of the public.
Although the aim is to raise capital for the company, the law guiding the operations of a company in Nigeria and many other jurisdictions do not allow private companies to publicly sell their shares or to accept biding of such shares from members of the public. In a situation where they disobey these directives, they will be liable to pay fine or other more severe consequences from the regulatory agencies.
2. RIGHT OF FIRST REFUSAL: Consequent upon the preceding point, private companies are obliged to make or accept biding s or offers (as the case maybe) from private indivuals who are willing to buy it shares. According to the law, private companies are obliged to make the first offer to members of the company and so they reserve the right of first refusal (right of first refusal is the right to receive offer from the company to buy it shares.
At that instant, the person is entitled to make a biding it reject the invitation to make an offer for the shares). Under public companies, there is no such thing as person’s entitled to right of first refusal.
3. TRADING ON STOCK EXCHANGE MARKET: Another important difference between public companies and private companies that is worthy of mention is the opportunity to trade shares on stock exchange market. The stock exchange market is a domestic or global market where company shares and assets are traded.
It is a virtual market place where the stock, shares and assets of viable companies are quoted and interested persons get to monitor the movement of such share value and based on calculated speculations, make investments. Public companies’s shares are allowed to be quoted in the stock exchange market but the shares of private companies are not quoted. On the contrary, private company shares are traded by private owners and interested persons.
4. SIZE OF THE COMPANY: One of the very glamorous feature of a public company which distinguishes it from a private company is the fact that public companies are relatively big corporations and often time with branches across stated of the federation and even beycompaniesond (in some cases) but private are relatively small when compared to public companies.
They usually have lesser work force, assets and shares. Private companies also have fewer branches compared to public companies that has larger work force and share capital.
5. FORMATION: In the formation of a company, the number of registered members matters. A public company is one that is, by law, allowed to be incorporated with over 50 members. It is entirely different from private companies where the law limits the number of registered members to 50.
This implies that at the incorporation of the company, (as a private company) more than 50 person’s cannot jointly incorporate the company as the prescribed number is 50 person’s or less. A public company can be incorporated by over a hundred person’s at a time.
6. DISCLOSURE: One major difference between a public company and a private company is the level of disclosure made by each of the company and the person’s entitled to such disclosure. According to the company’s memorandum of Association and Article of Association, a public company is obliged to make periodic disclosure of it’s financial statements and operations but it is entirely not the same with a private company.
A private company is only obliged to disclose it’s operations and financial statements to it’s shareholders and as well as the principal members.
7. MODE OF RAISING CAPITAL: Every company requires capital (money) to effectively function and carryout it’s objective les or business. One of the greatest challenge companies face is raising such capital required to further the company’s operations.
To this end, the mode of raising capital between public and private companies differs. Public companies leverage on their shares to raise enough capital to run their company by offering them to the members of the public who subscribe the shares at a specific rate and become shareholders. On the other hand, private companies are not allowed to offer their shares to the public so they rely on few private individuals to subscribe to the company’s shares.
8. CONTROL: While it is important to understand the company’s modis operandi, it is also important to note the level of control each of the parties have. In a public company, the shareholders has more influence on the company and how it’s being run, voting and decision making rights.
Under a private company arrangement, the company has and exercise more control over it’s activities through the directors and principal shareholders with more shares.
9. REGULATION: The incorporation of a company (be it public or private company) is governed by law. In Nigeria, the applicable law includes the Company and Allied Matters Act, the Securities and Exchange Commission, Finance Act and many others. Based on the provisions of the Company and Allied Matters Act (CAMA) the formation of a company must concur with relevant guidelines and must operate under certain conditions (some of which has been mentioned above).
Some of the rules required under a private company is the minimum number of nominal share capital of the proposed or newly incorporated company. According to CAMA, a private company must be established with a minimum share capital and such must not be derogated from or the company will face sanction. On the other hand, the minimum share capital for a public company is way higher.
10. SPECIAL PRIVILEGES: According to the relevant extant laws, the rights and privileges enjoyed by both companies differs. A public company is obligated to have periodic physical board meetings and are obligated to file their financial reports with the commission, also make it open to the public but private companies enjoy a higher privilege adder 4of permission to conduct an online meeting (virtual).
In conclusion, it is quite important to understand that, thoughthe motive a company or it’s incidental objectives may share lots of similarities but a close analysis will reveal their primary objects based on the type of company and the contents of it Memorandum of Association. The above mentioned points stands out as core differences between a public company and a private company.
