What are the differences between a private and a public limited company?

Each company type has particular features and benefits that make choosing the best one perplexing. 

Read on to find out the differences between a private and public limited company. By the end of this article, you’ll be able to choose the best one for your needs. 

What Are The Differences Between A Private And A Public Limited Company?

A private company is held under private ownership. It may issue stock and acquire shareholders but its shares aren’t publicly traded. The company doesn’t issue shares through an initial public offering. Ownership of a private company can be a family, individual, or group of investors. 

Alternatively, a public limited company is one whose stock shares are publicly traded. Shareholders own the company and individuals, companies, and mutual funds can buy its shares on the stock exchange.  

The liability of shareholders is limited to their stake in the company. Directors are usually elected to manage the company. 

The key differences between a private and public limited company 

Trading Of Shares 

A public limited company offers its shares for trading on recognised stock exchanges. Anyone qualified can purchase shares from the company in an open market. A private company doesn’t offer its shares on the stock exchange. Instead, ownership of its stock is limited to exclusive members. 

Transfer Of Shares 

Private companies have restrictions in the articles of association regarding the transfer of shares. The board of directors must approve any transfer of shares. 

For a public limited company, there are no restrictions on transferring shares. These are freely traded on the stock exchange market. 

Issuing A Prospectus 

A private company doesn’t issue a prospectus. Shares may be shared through private placement following procedures. A public limited company issues a prospectus following procedures. It may also opt for private placement of shares following procedures. 

Forming Quorum

Two members must be physically present during a general meeting to form a quorum regardless of the number of members.

 A public limited company requires five members to be physically present to form a quorum when members present less than 1000. 

Fifteen members are necessary when the members are between 1000 to 5000. Thirty members are required if attendants are more than 5000. 

Why Choose The Private One?

Below, we’ve outlined the reasons to choose a private company over a public limited company:

Keeping Your Finances Private

A private company is not obliged to share financial details with the public as a public limited company. It eliminates the pressure of meeting the expectations of shareholders. There is also no need to divulge business information that may be helpful to your competitors. 

Encourages Long Term Planning 

There’s no need for short term planning as in a public limited company to meet the expectations of shareholders. Eliminating the need to produce quarterly reports allows focusing on long term goals. 

Enjoying More Flexibility And Freedom

A publicly traded company must comply with securities market regulations. Fortunately, private companies don’t have corporate governance regulations to adhere to. The business has more freedom and flexibility regarding governance and structure. 

Limited Exposure To Business Liability

The shareholders in the company are liable to business debt to the amount of share capital. Shareholder’s private assets are not attached by business creditors to recover debts. It lessens the risk of doing business. 

Or The Public One? 

If you choose to form a public limited company, these are the benefits:

More Transparency

There’s transparency in a public limited company. The company is legally obliged to make its final details and reports available such as quarterly and annual accounts. It makes the company more transparent compared to a private company. 

Limited Liability Of Members

Shareholders in a public limited company are liable to company debts up to their stake. Their liability is limited to their hares in the company. It makes their private assets safe from attachment by business creditors.

Opportunity To Raise More Capital

A public limited company can easily raise capital by listing shares on the stock exchange. The company can sell debentures, and bonds on the same market. These are unsecured debts issued to a company for its financial integrity and performance. 

Perpetual Existence 

A private limited company has perpetual existence unless specified in the articles of organisation. Owners of the company can change without causing its dissolution. Death, withdrawal, or withdrawal of any member doesn’t make the company cease to exist.