Opening a company is a responsible event that requires careful attention. It is important to figure out what types of companies can be opened, and how they differ. All the detailed information will allow us to choose the most suitable type of company for the successful development of the business.
There are 2 most common types of companies, namely:
- A private company with limited liability.
- A public limited company.
Detailed information will allow you to understand what these types of companies are, as well as the difference between private limited company and public limited company. These details help readers understand which type of company would be more appropriate in a particular case.
Private Limited Company
A private company is a company that is privately owned. It has the right to issue shares to shareholders, but these shares cannot be traded on a public exchange or issued through an IPO. There are no specific requirements for a private company from the Securities and Exchange Commission (SEC). This applies to the submission of documentation for public organizations. Their shares are less liquid and more difficult to evaluate.
Rights of founders of a private limited company
At its core, a limited liability company is a form of collective ownership of a business, and the founders are its owners. To understand the difference between public limited company and private limited company.
It is necessary to understand what rights the founders of a private company with limited liability have. The following table will help you with this:
- Co-manage business.
- Keep abreast of the conduct of business and have access to familiarization with financial performance indicators.
- Receive dividends from the company’s income.
- Sell and donate a share to other business owners or people not included in the list of participants, unless this is prohibited by the founding document.
- Get part of the property in case of a business closure.
These are the features of a private limited company that apply to the founders.
Obligations of the founders of a limited liability company
Members have their responsibilities in addition to rights. The duties of the founders of a private limited company include:
- Depositing funds to the organization account by their shares.
- Do not disseminate information about the activities of the company.
- At the time of incorporation of a private limited company and application for its registration, the organization must have at least half of the amount of capital in the account of the organization. You have 4 months to pay the rest.
Participants may also have other obligations at the discretion of other owners and after the agreement at the general meeting.
Features of a limited liability company
To understand the difference between a public and private limited company, you need to understand the specifics of a limited liability company. The features of a limited liability company are as follows:
- A private limited company may be formed by one person who becomes its sole member.
- A private limited company may not have a seal. Information about this must be indicated in the charter of a limited liability company.
- A private limited liability company cannot have as its sole participant another economic company (a legal entity) consisting of one person. If another economic entity has 2 participants, then this economic entity may establish a limited liability company.
- The number of participants in a limited liability company must not exceed fifty. If the specified limit is exceeded, a limited liability company must be transformed into a joint-stock company (non-public or public) or a production cooperative within a year.
- Options for contributing to the authorized capital of a limited liability company: money, securities, other things or property rights, or other rights that have a monetary value.
- The next general meeting of the company’s participants is held within the time limits specified by the company’s charter, but at least once a year.
- A participant in a limited liability company has the right to withdraw from a limited liability company at any time, regardless of the consent of its other participants, if this right is provided for by the charter of the company.
A private limited liability company is obliged to pay to a participant, who has submitted an application for withdrawal from a limited liability company, the actual value of their share or to give them a property of the same value within three months from the date of the occurrence of the corresponding obligation. At the same time, the actual value of the share is determined based on the company’s financial statements for the last reporting period preceding the day the application for withdrawal from the company was submitted.
Public Limited Company
Public companies differ from private companies in that their shares are listed on the stock exchanges and the public has access to buy shares in these companies at a market price, and public companies, in turn, have the opportunity to raise capital from the public.
Thus, public companies, unlike private ones, have a much wider pool of investors. Investors in non-public companies also tend to have a say in decision-making or have a greater degree of influence over the company’s business decisions.
Another important difference between public companies is the requirement to publish financial results. The regulator obliges public companies to report their financial results on a quarterly, semi-annual, and full-year basis. This is necessary so that a wide range of investors can make an informed and realistic investment decision.
What is the difference between a private and public limited company? From an investor’s point of view, shares of a public company may be considered a more liquid asset than shares of non-public companies for the following reasons:
- Shares may be offered for sale to an unlimited number of people.
- A potential buyer can evaluate the company from open (including independent) sources.
- Shares of a public company are traded on the stock exchange, where it is easier for the seller to find a buyer than in the unorganized market.
- Information about transactions made on the organized market (the price and the volume of the transaction) is available in open sources to both the buyer and the seller and can be used as a basis for evaluating the package for sale.
A public company that went public on the stock exchange, but for some reason ceased to operate, is called a shell company.
Advantages and disadvantages of public limited companies
Public limited company examples have certain inherent advantages over private companies. Public companies are selling future shareholdings and expanding access to debt markets. Once a company goes public, additional offerings generate revenue by creating and selling new shares in the market.
However, these benefits come with increased scrutiny from regulators and less scrutiny from majority owners and founders. Public companies must comply with mandatory reporting standards regulated by government agencies. In addition, relevant shareholders are entitled to receive documents and notices of business activities.
However, when a company goes public, it must answer to its shareholders. For example, shareholders vote on certain changes and additions to the corporate structure. Shareholders can vote with their dollars, offering a company a higher valuation or selling it for less than its true value. This is also the difference between a private and public limited company.
The key points of a public limited liability organization include:
- A public company issue shares through an IPO and is listed on at least one stock exchange.
- Most private companies go public to raise capital.
- Many public companies go private to gain more control over the company and its decisions.
As you can see, there are a lot of public limited company advantages and disadvantages. Therefore, the demand for opening this type of company is considerable.
Comparison Chart
Consider a small comparison table. It will allow you to understand the difference between public and private limited company.
Private Limited Company
- One founder is enough to manage the company.
- It is not necessary to have your seal.
- The number of participants should not exceed fifty.
- A member may leave the company at any time.
- Funds for opening a company must be deposited at the time of opening in the amount of half of the total amount.
- Full payment for the maintenance of the company must be made within 4 months from the date of its opening.
Public Limited Company
- Issue shares and can trade them on the stock exchange.
- Higher opportunities for attracting third-party capital.
- The average level of control by the owner.
- Sale of shares to an unlimited number of people.
- Estimation of the value of the company and its shares thanks to open sources.
- All information about the company is publicly available.
Conclusion
The difference between private and public limited company is significant. Each type of company has its characteristics that must be considered when starting a business. Certain factors can influence the course of events and the development of a personal matter, depending on the type of company chosen.
