Part 2: Differences between private and public companies
3 Differences between private and public companies
| Differences | Public company | Public company |
| Capital | Capital can be raised by offering its shares to general public | Private companies are prohibited to offer its shares to general public |
| Names and identification | Plc denotes public limited company | Ltd denotes private limited company |
| Listing | Shares of public companies are listed on stock exchange | These companies are not allowed for listing on stock exchange |
| Accounts | Public companies are required to produce its annual accounts within six months after the financial year end. | Private companies are required to produce its accounts within nine months after the year end. |
| Audit | Public companies are strictly required for external audit of financial statements. |
3.1 Liability
On the basis of liability companies may be
Limited liability companies
Companies in which liability of members is restricted to specific limit in case of liquidation or to pay debts when business ceased
Unlimited liability companies
Companies in which liability of members is unlimited i.e. they have to pay all the debts and other payments in any case. if limit of debts crossed from the total investments of members than they have to pay from their personal wealth.
Further we categorized limited companies into:
- Companies limited by shares
- Companies limited by guarantee
The companies in which liability of members is limited to the amount of value equal to the nominal value of shares owned, known as companies limited by shares
Example
A member has 5000 shares having face value of each 2$ then the amount 10000$ will be considered as the maximum amount paid by the members in case of liquidation or in any other case of business ceased.
While the companies in which liability of members limited to the fixed amount agreed by them known as companies limited by guarantee.
Example
They all agreed to pay 20,000$ for the debts of company although they poses 50000 shares then in case of liquidation members will only responsible up to the extent of 20000$ and if any other amount remaining will be paid by the company itself because company as a separate legal entity has personal wealth and personal liability(unlimited).
3.2 Control
On the basis of control companies may be divided into;
- Parent companies
- Subsidiary companies
The company which is holding other companies or we can say company has subscribed shares to other companies that holding company is called parent company
Company A controlling company B and C and company A holds 20% and 50% shares in company B and C. So from above company A acts as parent company and Company B & C are subsidiary companies.
3.3 Size
Size is another factor which may categorize the companies into three different types below;
- Small size companies
- Medium size companies
- Large size companies
3.3.1 Small and medium sized companies
They are categorized on the basis of some factors like:
- Number of employees
- Limit of revenue
- Limit of profit
- Ownership structure
- Complexity of operations and activities
Generally fewer employees work in small sized companies. It ranges from fewer to 10 employees but for medium sized companies it may range from 10-100 employees and for large sized companies employees are more than 100 to unlimited.
In accounting and auditing purposes small and medium sized companies may have following limitations.
Revenue should not exceed from £ 6.5m and total of balance sheet must remain in the extent of £ 3.26m and the numbers of employees are generally 50 or fewer on average.
In auditing third requirement is not strictly required.
These factors are not fixed or same in all over the world. For different regions revenue, profit and employees ranges are different
3.3.2 Large Companies (multinational companies)
The companies which are operating in more than one country (regions) simply knew as multinational companies and they fall in the category of large (big) companies as their size is increased due to the factors above in the SMEs.
Those above factors become unlimited for large companies.
The companies are registered under more than one country and in each country branch office is maintained with whole staff to operate its all activities. All these branches in different countries are controlled under the main head office in one country.
Its products are marketed and sold in many countries so these companies play a good role in globalization.
Examples of multinational companies
- Wall mart
- McDonalds
- Dell
- Toyota
- Shell
Features
- Multinational companies fall under large size companies so range of employees and balance sheet range is so high.
- Its operations and activities are complex and lengthy procedures.
- Products manufactured in one country, marketed in another and may sell in another country so it gives globalization.
- It may enhance communication channel.
- Standard and quality of products and services is maintained at high level in all over the world.
3.4 Listed/Unlisted companies
Another name of listed company is known as quoted company. Its shares can be accepted for trading (buying and selling) on stock exchange. So it’s easier to raise capital for quoted companies.
Examples: Public companies