What are the differences between a private and a public company?
Here at Simply Docs we appreciate it might be difficult to recognise the difference between a private and public company, so we have put together a clear explanation to help you understand.
In practice, the directors of a private company will usually own or control all or a majority of the shares. There is no market place for the shares and the articles will tightly control their transfer. Therefore to many people the difference between a private company and a public company is that the former cannot offer its shares for sale to the general public, whilst the latter can. Whilst this is broadly true, there are numerous other differences between the two.
The principal reason to register (or re-register) as a public company is to have the ability to offer a company’s shares to the public and access a wider pool of capital. This ability however comes at a price in terms of a much greater number of restrictions and a considerable loss of privacy. There is a much greater legislative burden to adhere to, both under the Companies Act 2006 as well as the Financial Services and Markets Act 2000 and all the additional rules particularly that this latter piece of legislation entails. There will also be the rules of the market on which the company has its shares listed, for example, the London Stock Exchange.
This greater regulatory burden, increased scrutiny and the greater amount of information that must be made available to the public, is one of the reasons why even some large companies, such as Boots the chemist, choose to operate as private companies (it was re-registered as a private company following its merger in 2006 with Alliance Unichem).
Some of the main differences between a private and a public company are:• To be a public limited company, the company's constitution must state that the company is a public limited company.
• A public company must obtain a trading certificate from Companies House confirming that it has the minimum allotted share capital, which must be not less than £50,000, or the prescribed equivalent in Euros.
• A public company may not allot shares unless one-quarter of its nominal value and the whole of any premium has been paid up.
• A public company is prohibited from allotting shares for a consideration other than cash, unless an expert’s valuation is obtained.
• Public companies may not purchase or redeem their own shares out of capital.
• Public companies may not reduce their share capital via solvency statement or give financial assistance for the acquisition of their shares.
• Public companies must have at least 2 directors. Public companies can however be formed by a single shareholder.
• There are fewer provisions regulating directors’ dealings with the company if the company is a private company.
• Private companies up to a certain size can be permitted to file abbreviated accounts with the Registrar of companies.
• Private companies do not need to hold AGMs, although they may do so if they wish.
• Only a private company can dispense with the formalities of holding general meetings by having a signed written resolution.
• Public companies must appoint a company secretary; private companies do not need to – although many choose to.