In this article we will explain private companies and public companies by reference to their key differences. We will discuss how the ownership, structure, reporting requirements, investor involvement and size differs between the two.
Ownership
The most obvious difference between a private company and a public company is who owns the company. A private company is privately held by a group of individuals or investors. In contrast, a public company will have sold at least a portion of itself to the general public via an initial public offering (IPO) on the open market.
A private company cannot sell stocks or bonds in order to raise capital for growth but they can use shares of equity in order to encourage the injection of capital from private investors. Similarly, they can borrow money on loan from banks or venture capitalists in order to grow and it can rely on its own profits.
A public company on the other hand can raise capital by selling the company’s stock (equity) on the stock market (also known as the stock exchange) or by packaging debt into bonds.
Structure
There are different requirements relating to the structure of private and public companies and the officers they are required to appoint. For example, public limited companies must have at least 2 directors (with one of whom being a natural person) and they must have a qualified company secretary. In contrast, private limited companies are only required to have one director and whilst they often do have a secretary there is no requirement for them to do so or for the secretary to have particular qualifications.
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Reporting Requirements
Due to the different nature of the persons involved in both types of companies, public vs private companies have more stringent reporting requirements. Private companies must file their accounts and reports within 9 months of the end of their accounting reference period whilst public companies must file their accounts and reports within 6 months.
Private companies are expected to file their annual reports to Companies House and, depending on their size, they might need an audit. Private companies are also required to file financial statements each year on the anniversary of incorporation. Private companies are also required to register persons with significant control (PSC) of the company as well as notifying Companies House of any changes to the board of directors, the company’s address and details of any changes to the share capital or articles of association.
Public companies must also disclose all of this information but greater transparency is required for the benefit of investors in capital markets.
Involvement
Investors in private companies tend to have more involvement in the company than those that have shares of a public company. Venture capital investors typically play active roles in the companies that form part of the fund.
Size
Most small businesses are private companies and for this reason private companies are generally smaller than public companies in terms of employees, revenue and international presence. However, this is not a hard and fast rule as some of the largest private companies, such as Deloitte and IKEA, are comparable in size to other companies listed on the public stock exchange.
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