Private Firms vs. Public Firms

CARIBBEAN MARITIME INSTITUTE Kingston, Jamaica Micro Economics Research Essay Research Question: What are the Regulations, Characteristics, Structures, Advantages, and Disadvantages, of Private Companies versus Public Companies? Research Essay Submitted in Partial fulfillment of the Requirements of the Course Presented to: Mark Lee Presented by: Samantha Masters ID: 20131670 DISL Year 1 Group D January 05, 2017  Public Firms are business firms in the public (non-private) sector of an economy, controlled and operated by civil servants and government personnel. It is a company that has issued securities through an initial public offering (IPO) and it is traded on at least one stock exchange or in the over the counter market (Body of Knowledge, 2017). Private Firms are business firms in the private (non-public) sector of an economy, controlled and operated by private individuals (Business Dictionary, 2017). Characteristics of Public Firms versus Private Firms In Public Firms Shareholders aren't personally responsible for the debts of the company in any amount over the value of the shareholder's investment whilst in Private Firms the business owners and investors are liable for the debts of the business. Public Companies are generally listed on a recognized stock exchange and traded publicly while Private Companies are held privately by the members. The transferability of shares of a private company is completely restricted while the shareholders of a public company can freely transfer their shares. Regulations Direct control of a public enterprise may be less costly than direct control of a private operator. Using financial incentives may be less effective for a state-owned provider than for a privately owned provider. Using incentive regulation to motivate improved performance is effective for private operators whose profit motives are clear. However, in the case of public enterprises the regulator must identify the objectives of the managers who may be more affected by political influence, government budgeting, and bureaucratic management than are their counterparts in privately-owned operators. Structure Both Private and Public Firms can be either limited or unlimited, that is, stakeholders having limited liability in relation to debt and other factors. There must be at least seven members to start a public company while a private company can be started with minimum two members. There is no ceiling on the maximum number of members in a public company, whilst a private company can have a maximum of 100 members, subject to certain conditions. A public company should have at least three directors whereas the private company can have a minimum of 2 directors. Advantages and Disadvantages of Public and Private Firm Public Companies are generally listed on a recognized stock exchange and traded publicly while Private Companies are held privately by the members. There must be at least seven members to start a public company while a private company can be started with minimum two members. There is no ceiling on the maximum number of members in a public company. Conversely, a private company can have a maximum of 100 members, subject to certain conditions. A public company should have at least three directors whereas the Private Ltd. company can have a minimum of 2 directors. Also, it is compulsory to call a statutory general meeting of members, in the case of a public company, whereas there is no such compulsion in the case of a private company. In a Public Ltd. Company, there must be at least five members, personally present at the Annual General Meeting (AGM) for constituting the requisite quorum. On the other hand, in the case of a Private Ltd. Company, that number is 2. Additionally, the issue of prospectus/statement instead of the prospectus is mandatory in case of a public company, but this is not the case with the private company. To start a business, the public company needs a certificate of commencement of business after it is incorporated. In contrast, a private company can start its business just after receiving a certificate of incorporation. The transferability of shares of a private company is completely restricted while the shareholders of a public company can freely transfer their shares. References Body of Knowledge on Infrastructure Regulation. (2017). Regulating Public vs. Private Operators. Retrieved From http://regulationbodyofknowledge.org/general- concepts/regulating-public-versus-private-operators/ Bradley, J. (2017). The Advantages of Private Limited Company. Retrieved from http://smallbusiness.chron.com/characteristics-public-company-61388.html Business Dictionary. (2017). Private Company. Retrieved from http://www.businessdictionary.com/definition/private-company.html Kumari, N. (2013). Advantages and disadvantages of public sector, private sect. Retrieved from https://prezi.com/mods-pyatpea/advantages-and-disadvantages-of-public-sector-private- sect/ Legal Raasta. (2016). Characteristics of a Private Limited Company. Retrieved from https://www.legalraasta.com/characteristics-of-private-limited-company/ Surbhi, S. (2014). Difference Between Pvt Ltd and Public Ltd Company. Retrieved from http://keydifferences.com/difference-between-public-company-and-private- company.html Slide Share. (2009). Characteristic Features of Private Companies. Retrieved from http://www.slideshare.net/blogroyaltyuniverse/characteristic-featuresofprivatecompanies Running Head: Public versus Private Firms Public versus Private Firms 5 2 Micro Econ Assignment ii