Difference between Public and Private Companies

Shares:
Share of Companys assets: A public company is one which has its tradable assets for sale to general public in the form of shares (specifically through stock exchange) whereas a private company has the choice to share the finance or just keeping it limited to founders and some of management bodies (family members or a group of people). Shareholders: A private company becomes public when the number of shareholders in that company becomes more than 25 except in some cases like according to a US law company can remain private till the number exceeds 2000 which is quite large. So this also means that a private company is of smaller expansion than that of a public company as the number of investors increase which is false in the cases where some private companies like Goldman Sachs did not make itself public for a long time even after becoming a fast grown mega-corporation. Management: Often it is seen that the founders of a public company are the major shareholders of stock so this redefines the role of a shareholder in a company. This means that a shareholder can also be the part of decision making in a company. Even the management post like independent directors (not allowed holding shares) and non-executive independent director (allowed to hold company shares) has the minute difference of holding shares only. For instance, Bill Gates holds close to 50% shares of Microsofts stock. Stock Exchange Enlistment: A public company is listed in stock exchange (sometimes its not when size is considerably small and laws of the locality approve it) whereas private is not which makes a public company to present relevant progress and growth statistics to people

(information is displayed in all cases) who are going to buy shares. Whereas a private company is not liable to present its every detail to public as there is no major shareholder to define and compare risk factors of investment between companies. One more fact is that if a privately held company takes the initial on its own than that can transform itself into a Public Company and can get enlisted in Stock Exchange.

Growth: A public company is responsible for attracting investors towards itself by showing constant growth so if there is not growth investors might create interest in other companies which further can be a loss. But differently, a private company generally has an independent owner who has his own ways to run a company and its finance. If a private company is in loss it discomforts a smaller group of people however a public company would have to bear high losses if it loses the pace at which it is progressing as customer confidence will be lost. Tendency of investors: It highly depends upon the investors if they have short or long term investment goals. Stock market shows the constant analysis of rise of fall of a companys share prices. If an investor has short term goals then he might invest in a public company that has suddenly boosted its performance in share market without seeing the trends even. A long term investor fully analyzes the trends of a company in stock exchange comparing with past years. However, a private company has nothing to do with all that as the investors are mainly in the group of higher management authorities and can be personally influenced by him.

Management: A private company can have less efficiency of management

as it has lower scales of salary and thus hiring less efficient professionals which further can be the cause of one of losses in company. The standards of a public company are very high regarding its finance so better performance can be seen.

Disclosure of Information: We cannot get (in case we want a full

disclosure through any medium) a full information brochure of a private company as facts can be concealed by the management whereas to gather attention of investors and publicity of progress Public Company keeps everything in display. In several countries it is necessary for Public Companies to have a certified public accountant and also enlist the shareholders in annual report who have more than 5% share in companys stock. So this acts as an advantage to Private Companies as they can keep the information secure from their market competitors who can use that otherwise and by this they also can avoid the immediate erosion of customer confidence.

Expansion of Companys Revenue/Funds: A Public Company

has greater possibilities to enhance its business and funds as these can get income by the investment made by investors in the form of stocks whereas private companies are sometimes not able to gather large amount of money in the hour of need. Public company can sale its assets in the form of shares to public to get financial support instantaneously without actually losing its property.

Annual Report:

Preparation of Report: A public as well as private both companies have

slightly different procedures of report preparation. In Public companies Director has the responsibility to get the Annual Report prepared mentioning every asset of preceding year. Under his supervision, a proper accounting of every aspect, change or policy amendment is done in the report. There are certain laws of information disclosure in annual report which must be followed by a public company. However, in private companies the powers of a Director are held by the owner so he further employs a Charted Accountant to keep the record of companys finance

during a year. The C.A. prepares the brief report of a company to be submitted to different government bodies but still kept private.

Mentioning of Changes and Policies: A public companys report

consists of a precise description of changes and policy modifications made during one finance year. Every financial result and operation is mentioned separately in the report plus proper notes to every financial statement are given at the end. Stock Options for employees and public, financial ventures and subsidiaries, responsibility statement of director and R&D statistics are mentioned clearly. Even the employees statement, causes and percentage of loss, year wise sales, explanation of products, financial performance and market trends of company are given full consideration in report. Investments made are also shown particularly by employees and public giving a description of dates and value. Outsourcing, consumption of resources, production, BOD, annual meetings, goals, transactions and expenses are declared specifically. Consolidated financial statement and notes with every such statement, cash flow and balance sheets, financial details of subsidiary companies etc. also comprise to make a major part of a Public Companys Annual Report. However, a Private Companys Annual Report consists just of some basic financial aspects and statements with a brief description which is because of no major liability to government and public bodies and such a brief accounting of facts makes the report comparatively smaller, less resourceful and informative.

Audited and Non-Audited Reports: A Public Company accounts the

information of statements, cash-flow and balance sheets with facts as well as notes both audited (liable to individual scrutiny) and unaudited (not subjected to verification as these are prepared from books and records). Audited records make investors have greater confidence in a company, supplier terms are mended, tax officers get a positive vibe about audited accounts and a companys taxation condition can be improved after suggestion by the Audit which is an advantage. Private firms are not supposed to compose such a clear-cut report which is audited so remains at

a loss to get all those advantages (but still the reports cant put under scrutiny because of being private except taxation officers).

Role of Director: Director plays a major role in the Annual Report

preparation, publishing and display by validating all the information provided through the responsibility statement and reconsidering report amongst the BOD. He has the responsibility to present facts and financial aspect in the original form. A public firm director does this legally with the help of concerned people involved in preparation. Private Companies dont consider the post of director so sincerely as the report prepping is completely left in the hands of C.A. which makes the report not-soconcerned with management bodies except the final inspection.