Difference between Public and Private Companies
Regardless of the type of business activity being operated, business structure and the industry it belongs in, there are essentially only two types of businesses in the world which are:
- Public companies and;
- Private companies
Also commonly referred to as proprietary companies, private companies are enterprises that have its interests held by a relatively small number of shareholders and its shares or stakes are not made available to the general public. Rather, it is traded, offered or exchanged to other entities privately.
In Australia, a privately held company is allowed to have a maximum of 50 shareholders and have a sole director who must be a resident of the Commonwealth. Typically, private companies are small-to-medium enterprises(SMEs) where the directors are also the owners of the company and the shareholders, family members or associates of the owner.
Since private companies do not trade shares and do not acquire gains or securities from its sale, their reporting obligations are generally less onerous. That said, private companies are not required to disclose or publish their financial statements to the public and only relevant government agencies (e.g. Australian Taxation Office) have the authority to access the information.
The vast majority of the largest companies in Australia are public companies where shares are traded publicly and are offered to the general public for acquisition. Through this, an enterprise is able to generate capital for itself enabling it to expand or improve its business operations.
Public companies have more than 50 shareholders and must at least have three directors, two of whom should be Australian residents. While the general business operations of the company are managed by the directors, the entity that has the utmost authority in a public company is the board directors which have the power to appoint or dismiss a director.
Unlike private companies, publicly-traded companies are required by law to disclose financial information including a detailed performance of the company for that income year.