Are you starting a new business? Are you already managing a company? Then you must learn what public vs. private company is.
There are various types and sizes of businesses. For example, small family businesses, freelance professionals forming an agency, large IT consultation firms, consumer goods manufacturing companies, and so on.
Whatever the business, the distinction lies in how the company raises money to run regular operations or grow it. Here come public vs. private companies. One has the freedom to raise money from the public market, while the other can only source funds privately.
Continue reading to learn about public companies, private companies, and their fine differences. The article will also introduce some popular service providers to set up a company in the USA or the UK.
What is a Public Company?
When any business corporation gets the status to collect funding from the general public, it is usually known as a public company.
A public company has multiple owners. Mostly, the public shareholders, the company management, and an SEC-authorized board of directors govern a public company in the USA. For other countries, like the UK, the provisions are fairly similar.
Such companies are usually available for stock trading on the US national stock exchanges like NYSE, Nasdaq, and AMEX (American Stock Exchange).
Public companies need to go through complex legal, regulations, and reporting processes to keep their status unchanged. Because being public means, you can collect public funding and grow your company exponentially.
For example, Apple, Microsoft, Alphabet, Amazon, Berkshire Hathaway, UnitedHealth, Walmart, Meta, etc., are public companies.
What is a Private Company?
A private company has a few owners. These companies do not trade their stocks in public stock exchanges like NYSE, Nasdaq, etc. Most private companies may not have stocks at all.
Some private companies may have unofficial stocks. Such companies trade these stocks in the grey market or with private investment firms. Because private companies can not get public funding from the open market. They must rely on venture capitalists for funding.
Private companies only need to comply with DOS regulations for doing business in the USA. They do not require to disclose financial reports to the public or follow any SEC regulations.
A private company may have different organizational structures. The following are the five official private company structures in North America:
Limited Liability Company (LLC)
LLC lets partners and sole proprietors own the company, but the owners are not fully liable for the company. LLC is an independent legal entity and shares limited liability with the owners. For example, in the event of bankruptcy, authorities can not use the owner’s personal funds for debt pay-off.
A single individual owns such a business. The owner is completely liable for anything and everything within the business.
When there are a few owners in a sole proprietorship, the entity becomes a partnership business. The partners bear unlimited liability for the business’s legal and financial obligations.
When there are unlimited shareholders within a private company that does not trade on national stock exchanges is known as a C-corporation. Small and medium businesses that want to go public must convert to a C-corp before the IPO filing.
When a private company sells its stocks to a total of 100 investors (not the public stock exchange), including the management board, it becomes an S-corporation. S-corps usually have a board of directors who submit various reports to the US state and federal government agencies.
The biggest private corporations in the USA are Cargill, Koch Industries, Fidelity Investments, Mars, Publix Super Markets, C&S Wholesale Grocers, etc.
Public vs. Private Company: Differences at a Glance
Find below a concise table that discusses public vs. private company characteristics:
|Characteristics||Public Company||Private Company|
|Naming||Must follow XXX Limited format||Must follow YYY Private Limited format|
|Members||At least 7||At least 2|
|Ceiling of Owners||Unlimited||Maximum 200|
|Director Positions||At least 3 directors||At least 2 directors|
|Public Stock Trading||Allowed||Not allowed|
|AGM Meeting||There should be at least 5 members physically present during the AGM||There should be at least 2 members physically present during the AGM|
|Public Disclosures||Mandatory||Not required|
|Issue of Prospectus||Mandatory||Not required|
|SEC Filings||Mandatory||Not required|
|Stock Transfer||Easier than a private company||Complex and can not transfer to the general public|
|Business Size||Larger than private companies||Usually smaller than public companies|
|Funding||Can raise funds from the general public, institutional investors, venture capitalists, etc.||Can only raise funds from venture capitalists|
Public vs. Private Company: Differences Explained
Access to Business Funds
The critical difference between public vs. private companies is in fundraising.
A public company can raise funds through several options like public equity stocks, bonds, capital market securities, venture capitalists, etc.
On the contrary, private companies can only raise funds through bank loans and venture capitalist investments.
Complying With SEC Guidelines
A publicly traded company must file various regulatory reports with the SEC. The notable ones are mentioned below:
- Quarterly financial report (FORM 10-Q)
- Annual financial report (FORM 10-K)
- Scaled disclosure requirements
- Current reports on FORM 8-K
- Exchange Act Registration
On the other hand, a private company does not need to submit the above regulatory reports to SEC.
A market-traded company must make reports, events, and decisions available to the public through websites or notice boards at the registered office. These disclosures should be related to the company administration, management, accounts, and finance sections.
On the flip side, a private company does not need to make the above events or reports public.
Public companies file for stock selling offers in many forms like IPO, FPO, rights issues, etc. Such companies can freely sell their stocks to the general public through national stock exchanges.
On the contrary, a private company can not sell its financial securities via public offerings. It must sell its shares to venture capitalists or buyers in the grey market.
A Public Company Going Private: Delisting From the Stock Market
A public company can become a private company if it starts the delisting proceeding from the national stock market. First, its promoters have to buy all the outstanding shares from the public shareholders.
Usually, businesses do the following transactions to go private:
- A third-party company or investment firm submits a tender offer to buy all the publicly held stocks.
- The public corporation merges with another private company.
- The public company announces a reverse stock split to reduce the number of public shareholders.
A Private Company Going Public: IPO
If you want to go public, you need to file for an IPO with national stock exchanges like NYSE, Nasdaq, AMEX, etc. Before you can do that, you need to hire an investment banking agency to review your company financials and underwrite your IPO (15c211) registration.
Then, you need to hire a company secretary service to file various financial, administrative, and management reports to the SEC. Not to mention submit various registration documents like FORM S-1, FORM 10, etc.
Moreover, you will also need a filing broker for IPO submission. You also need to raise minimum funding from anchor investors (qualified institutional investments) before the IPO sales.
So far, you have learned the two most important distinctions of companies depending on their funding and reporting liabilities. Now, find below some incorporation service providers that help you set up various types of companies:
Online Incorporation Service Providers in the USA
Getting incorporated is a challenging task because you need to register your business in a state in the US. You will also need to file several applications and regulatory forms to comply with incorporation guidelines. One of the best ways is to hire experts who have experience in such activities. You could consider ZenBusiness.
Some of the tasks that ZenBusiness will do for you are:
- Help you choose your filing options
- Submit your formation documents to the state offices
- Keep track of the state proceedings after filing
- Deliver incorporation documents to your dashboard
- Help you comply with state and federal laws to stay afloat as a corporation
The platform helps small businesses to grow by acquiring funds from investment firms through the incorporation process.
Filenow helps you with business filings for company structures like LLCs, corporations, and S corporations. You can choose Filenow if you want to focus on your business and let the experts handle business-filing work.
Its salient features are:
- Takes care of all the business filing paperwork
- Electronic delivery of business filing documents
- Express shipping if you need physical documents
- Error-free filing or moneyback guarantee
- No hidden fees
Filenow is not just for existing businesses. You can start a new company as well. It offers the Filenow Wizard app for company formation. Then, its business filing experts review your paperwork.
The service provider also submits your filings with the Department of State (DOS) and hands off the corporation package documents when your company is approved.
If you want to enjoy various business benefits in the US state of Delaware, you can file your incorporation documents with DelawareInc.com.
Its key services that benefit your company are:
- A Good Standing certificate from the state of Delaware
- Get a new EIN or Federal Tax ID Number
- Get certified copies of corporate documents
- Document apostille services
- Business filings for foreign qualifications
- Company name amendments
The firm handled the business filings for 300,000+ companies in Delaware. Thus, you must check out this service provider since they have got extensive experience in the field.
Online Incorporation Service Providers in the UK
1st Formations help you start a company in the UK in four simple steps. It has created a database of registered business names. You just cross-check the business name in your mind in this database to see if the name is available.
Then, you just select a service package with 1st Formations and submit company information on its portal. Your business filing partner will pick up from here. In the course of new company registration, you can also get a free business checking account from some of its partner banking outlets.
1st Formations offer an extensive range of company services, some of these are:
- Confirmation statement
- Company name change
- Company secretary service
- Issue and transfer of shares
- Director appointment and resignation
Rapid Formations have helped 750,000+ companies to start their operations in the UK. If you are looking for error-free incorporation filing, you can check out this company incorporation agent.
And, it is not just for UK citizens. Foreigners who want to start a legally bound corporation in the UK can also get assistance from Rapid Formations.
It also helps you start a new company in simple steps like choosing a company name, selecting a payment plan, paying the fees, and completing the company filing order. And, if you stay abroad, you can complete the process from the comfort of your home.
Companies Made Simple
Companies Made Simple offers some really quick company formation services in just 3 working hours. Its business filing services are suitable for many company structures, including the followings:
- UK limited company
- Limited by shares or guarantee
- Flat management company
- Dormant or shelf companies
Companies Made Simple provides an array of corporate services so that you can do all the third-party dealings with one trusted name. Its additional service offerings are:
- Virtual office solutions
- Mail forwarding
- Supplementary company documents
- Certificate of good standing
- Company share services
- Accounting consultancy
- Company secretarial services
By now, this public vs. private company article should have cleared your doubts about different types of companies depending on their funding. You must have also developed a clear idea if you should stay as a private company or go public.
Moreover, you have discovered some trusted company formation services to incorporate your business in the UK and the USA.
You may also be interested in learning the tips to build a one-person company.