Every company in the world falls into one of two categories: public or private. From Disney to your local pizza restaurant, all companies have to choose between these options. They are both distinct legal entities but are governed by different rules.
In short, the shares of a public company are traded on a stock exchange while the shares of a private company are not. This means a private company is generally owned by its founders, managers or investors.
Read on to find out more about the difference in practice:
What Are The Benefits of Being A Public Company?
There is no ‘correct’ choice between being a public or private company. It all depends on what is right for your organisation. However, most organisations begin as private and later switch to being public. This is because there are many advantages to being a public company.
Public companies are traded on the stock exchange. This means stocks and bonds can be sold on the public market which means funds can be raised to fund growth.
Although private companies do have some options to sell, they cannot simply open their shares to the general public. This can be helpful if they want to expand into new projects.
Making a company public may also help to raise publicity. It can help consumers gain an awareness of the brand which is a good strategic move. There is also a sense of prestige that comes with being a public company.
One last point is that being a public company can spread the risk across multiple shareholders. This reduces individual stakes in the organisation. Investors might want to profit from the shares they have without carrying most of the risk for future projects.
What Are The Benefits of Being A Private Company?
The difference between public and private companies is not all one-sided. Many small companies simply do not have the infrastructure to meet the demands of becoming a public company. More than this, being a private company can be far simpler and many successful companies never turn public.
One of the main advantages of being a private company is that they don’t have to answer to stockholders. This can simplify the decision-making process and streamline communication through the organisation. A successful leader can push through decisions and thrive in a private company.
More widely, the law surrounding public companies is different. They must report on their finances which includes filing specific reports. This means information about public company funds is readily available through financial disclosures.
There are other legal requirements for positions that must be filled. Private companies must have at least one director but other requirements such as the Company Secretary are optional. Public companies are expected to have a Company Secretary that meets certain qualifications.
However, whether the company is public or private, they still have to meet compliance standards.
How Can Convene Support Public and Private Companies?
Both public and private companies rely on streamlined communication through their organisation. A Board portal like Convene can help you support your governance standards by improving your organisation’s internal processes.