Public vs Private Companies: What’s The Difference?

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Wondering about the differences between public and private companies?

The main difference is the public are able to invest in public companies, but they can’t invest in private companies. In other words, public companies can be listed on stock exchanges, such as the London Stock Exchange (LSE).

With this power comes responsibility—as a result, public companies have more paperwork when it comes to disclosure requirements.

While both private and public companies are regulated by the Companies Act 2006, public companies are also regulated by the Financial Conduct Authority (FCA).

There are also liability differences and lots of other regulatory differences which we’ll get into below. But first, let’s identify what a public or private company is.

How To Tell Whether A Company Is Public Or Private

Firstly, companies can be divided into two categories, private (otherwise known as proprietary) or public.

Within the private category, private companies are divided further into a large or small private company.

Small or medium sized businesses are generally private companies.

If You’re A Private Company, Are You Big Or Small?

This is how you figure out whether your private company is a big or small one! With the revised UK Corporate Governance code and the Companies (Miscellaneous Reporting) Regulations 2018 coming into effect, certain changes have taken place.

To be a large private company on or from 1 January 2019, you need to satisfy the below criteria for each financial year.

Global Turnover	£200 million or more
Balance Sheet	£2 billion or more

Structural And Shareholder Differences Between Public & Private Companies

For public companies:

There is no limit to the amount of shareholders you can have
There must be a minimum of 2 directors, who are at least 16 years of age
There must be a minimum of 1 company secretary
The share capital must be a minimum of £50, 000
A registered office address that is in the same UK country the company is registered in

For private companies:

No maximum number of shareholders
There must be a minimum of 1 director
A company secretary is optional
A registered office address that is in the same UK country the company is registered in

Prospectus Requirements For Public & Private Companies

If you are operating a public company, you will need to release a ‘prospectus’ to shareholders which includes details on the company’s financial risks, profits, losses, assets, liabilities, business model and other information.

Private companies, on the other hand, can’t raise funds in any way that would require a prospectus. This limits a private company’s options when raising capital.

Something to note on the topic of fundraising, crowdfunding has become an increasingly popular option. Learn more about it here.

Reporting Obligations For Public & Private Companies

A public company must prepare both a director’s report and a financial report on an annual basis and have this independently audited.

Meanwhile, a private company is generally off the hook. A private company only needs to meet reporting obligations if they are a ‘large company’.

What Else Does a Public Company Have To Do?

If you’ve ever invested in shares, you would have received a copy of the public company’s constitution, financial statements, and directors reports. This is actually an obligation for public companies to report to their shareholders.

As well as this, public companies have to hold annual general meetings and manage a share register.

Why Would You Switch From A Private Company To A Public Company?

It is common for private companies to switch to a public company when they reach the limit of shareholders permissible, and wish to grow. There are however, many more differences that you should consider first, and discuss with a lawyer.

Feel free to contact us at [email protected] or on 08081347754 to find out more about the best company structure for your business. We’re available any time for a free, no-obligations chat.

Justine Wu

Justine is a legal consultant at Sprintlaw. She has experience in civil law and human rights law with a double degree in law and media production. Justine has an interest in intellectual property and employment law.