Private businesses and state-owned businesses belong to two distinct economic categories. Anyone intending to start or invest in a business must comprehend the distinction between public and private companies.
Both public and private companies make important contributions to the economy and provide various benefits to owners and their shareholders.
In this article we are going to explain what is the Difference Between Public and Private Company.
What is a public company?
A business entity that has issued shares of stock to the public and is listed on a stock market is referred to as a public company, also known as a publicly traded company or a public limited company.
Publicly traded companies must abide by stricter restrictions, which include frequently sharing financial and other information to the public via annual reports, earnings announcements, and other means.
Providing investors with information about the company’s performance and prospects will help them make wise investment decisions.
Public companies can raise funds by issuing stocks or bonds, which provides them access to a larger pool of capital. Public corporations’ size and customer, employee, and operational reach are typically greater.
Additionally, investors can quickly buy and sell shares on stock markets thanks to the ease with which public company shares can be traded.
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What is a private company?
Private companies, also called private limited companies, are corporate entities held by a small group of people and are not traded publicly.
Private companies, as opposed to publicly traded ones, do not have their securities listed on stock exchanges and are not publicly traded.
Private businesses can operate with a higher level of privacy since they are not subject to the same regulation and transparency requirements as public companies.
Private businesses can now make choices rapidly and outside of public view. However, private businesses may find it challenging to obtain money from conventional sources like banks or the stock market and need more options for raising capital.
Furthermore, private company shares are private, making it difficult for shareholders to sell their shares.
Difference between public and private company
Public Company
- Ownership: The ownership of a public firm is extensively distributed among different investors who have acquired its shares on the stock market.
- Transparency: Public corporations should frequently disclose financial and other information to the public and are subject to stricter rules.
- Fundraising: Public corporations can raise funds by selling stocks and bonds and have access to a greater pool of capital.
- Size: Public corporations typically have a greater physical presence and a larger reach regarding clients, personnel, and business activities.
- Liquidity: On stock markets, shares of publicly traded corporations are easily tradable and can be purchased and sold.
- Corporate Governance: Higher corporate governance requirements, such as frequent shareholder meetings and the nomination of independent directors, are required of publicly traded firms.
Private Company
- Ownership: A small number of shareholders or partners usually own most of the shares in a private corporation.
- Transparency: Private businesses enjoy greater freedom regarding reporting requirements and are not required to disclose financial information to the public.
- Fundraising: Private corporations often need more alternatives for raising capital and may encounter difficulties when getting funding from trusted organizations such as banks or the stock market.
- Size: The average size of private corporations is smaller, and their customer is more precisely targeted.
- Liquidity: Private corporation shares are difficult for shareholders to sell since they are not easily tradable or publicly listed.
- Corporate Governance: Private corporations may be subjected to fewer obligations for shareholder meetings and the appointment of independent directors due to laxer corporate governance regulations.
Minimum directors in public company
A public limited company in India must have a minimum of three directors, according to the Companies Act of 2013. No maximum number of directors can be appointed to a public limited company.
The company’s management and decision-making are the directors’ responsibilities. The shareholders choose them, and their terms are usually one year.
It’s crucial to remember that the directors must be private individuals and cannot be organizations or companies.
Minimum directors in private company
A private limited company in India must have a minimum of two directors per the Companies Act of 2013. A private limited company can have only a certain number of directors.
The company’s management and decision-making are the directors’ responsibilities. The shareholders choose them, and their terms are usually one year.
It’s crucial to remember that the directors must be private individuals and cannot be organizations or companies.
Example of Public companies in India
Tata Consultancy Services (TCS): TCS is a dominant producer of IT services, business solutions, and digital solutions. It is a part of the Tata Group.
Reliance Industries Limited (RIL): Retail, petrochemicals, refineries, oil and gas exploration, and conglomerate RIL are some of its areas of expertise. It is one of the biggest companies in the global petroleum market.
HDFC Bank: One of India’s top private sector banks, HDFC Bank is renowned for its commitment to technological advancement and innovation. In addition to personal and business banking, investment banking, and insurance, the bank provides a wide range of other financial goods and services.
Bharti Airtel: One of the leading providers of mobile, fixed-line, and broadband services in India is Bharti Airtel, the largest telecom provider in the nation. It is active in 16 nations across Asia and Africa.
Housing Development Finance Corporation (HDFC): The largest housing finance company in India is HDFC, a major player in the mortgage and real estate financing industries. The business offers a variety of financial goods and services, such as mortgage loans, loans for commercial vehicles, and property insurance.
State Bank of India (SBI): SBI is one of the largest banks in the world by assets and the largest public sector bank in India. In addition to retail banking, corporate banking, investment banking, and insurance, the bank offers a wide range of other financial goods and services.
Infosys: Leading suppliers of business solutions, consulting, and IT services include Infosys. With a global presence in over 50 countries, it is one of India’s biggest and most successful IT enterprises.
Indian Oil Corporation (IOC): The largest oil and gas corporation and largest business in India is called Indian Oil. The business has a significant presence in the Indian market and is engaged in the exploration, production, refining, and marketing of petroleum products.
Example of Private Limited Companies in India
- Flipkart
- Paytm
- Ola
- Swiggy
- Zomato
- Policybazaar
- Bigbasket
- Byju’s
Flipkart: One of the early adopters of internet shopping in India, Flipkart is the largest e-commerce company in the nation. The business has a sizable and devoted customer base and sells various goods, including electronics, home appliances, clothing, and groceries.
Paytm: India’s top digital payments startup, Paytm, is a key player in the country’s fast expanding fintech industry. The firm provides a wide selection of financial goods and services for small businesses, such as digital wallets, mobile payments, and financial services.
Ola: Ola is the largest ride-hailing company in India. The business is well-established in India’s major cities and provides various transportation options, including taxis, auto-rickshaws, and electric cars.
Swiggy: India’s top online food delivery platform, Swiggy, is a significant player in the nation’s rapidly expanding food tech industry. The business has a substantial presence in India’s main cities and provides various culinary selections from community restaurants.
Zomato: Zomato is a well-known international online meal ordering and delivery service based in India. With a significant emphasis on the user experience, it offers consumers various dining options, including restaurants, cafes, and bars.
Policybazaar: India’s top online insurance marketplace, Policybazaar, is a significant player in the nation’s insurance business. The business specializes in employing technology to streamline the insurance purchasing process and offers various insurance products, such as life insurance, health insurance, and auto insurance.
Bigbasket: India’s largest online grocery and food delivery business, Bigbasket, is a significant player in the nation’s e-commerce market. The company is well-represented in India’s major cities and provides many food and household goods, including fresh fruits and vegetables.
Byju’s: One of the biggest edtech companies in the world. The business focuses heavily on leveraging technology to enhance learning outcomes and offers a variety of online learning courses and programs, including test preparation, K–12 education, and competitive tests.
Conclusion
In conclusion, there is a big difference between public and private company, and each has particular benefits and drawbacks. Private businesses must answer to their owners, but public corporations must answer to shareholders and the general public. Anyone who wants to start a business or invest in one must comprehend these distinctions.
FAQ
- Can a private company be listed?
A process known as an initial public offering allows a private firm to be listed on a stock exchange (IPO). This entails the business opening its shares to the public for the first time and becoming a publicly listed business. However, this procedure may be difficult and is subject to regulatory regulations.
- What is the dearness allowance in private companies?
An employee’s salary may include a dearness allowance (DA) designed to lessen inflation’s effects. It is a cost-of-living adjustment figured out using the current price level and is normally paid as a percentage of the base pay. The dearness allowance may differ in private enterprises depending on corporate policy and the collective bargaining agreement with the employees.
- How to calculate dearness allowance in salary for private companies?
You need to know the basic pay and the percentage of dearness allowance the employer offers in order to calculate the dearness allowance. DA = (Basic Salary * DA Percentage) / 100 is the formula. For instance, the DA would be (50000 * 10) / 100 = Rs. 5,000 if the basic wage was Rs. 50,000 and the DA Percentage was 10%.
- Can private company issue shares?
A private corporation may issue shares, but there could be different procedures and restrictions than a public firm. A few people or investors through private placement are often the only people who receive shares from private corporations.
- How to calculate the value of shares in a private company?
Shares in a private company are valued based on a number of variables, such as the company’s financial performance, potential for future growth, and share market demand. The value of shares in a private firm cannot be determined using a single fixed formula.