Wrong Impressions on Incorporated Companies
Generic business terms often cause confusion. In fact, many have mistakenly thought an incorporated public company is a state-owned and operated corporation. The truth for that matter is that an incorporated public corporation is a private interest.
The same misconception applies to incorporated private companies. Many are made to believe that incorporated private companies are generally mandated to comply with every provision of the Companies Act of 2013. This type of incorporated company enjoys some preferential powers to execute an internal decision on its own, without necessarily informing the government about it.
As such, many are probably asking – When is an incorporated company public or private?
Determining Differences
Wrong impressions hound public company and private company. It is imperative to determine what makes them different from the other.
A public company is a corporation issuing shares of stocks. Moreover, these shares of stocks are open for public acquisition or subscription. Shares are traded through a stock exchange. Most public companies are considered big-buck businesses
On the other hand, private company’s corporate stocks are not publicly traded on the open market. These shares are held internally by a limited number of investors. Being a private company does not necessarily mean a small business though. There are big business corporations which have opted to remain as “private” because of the company formation’s salient features.
Compliance for Private Company
Regardless of whether a business corporation is classified as an incorporated private company or public company, India’s Ministry of Corporate Affairs requires both to have its board of directors, and an annual meeting for keeping records, list of shareholders and holdings.
Incorporated private companies may choose to skip registration of their stock offerings with the Securities and Exchange Commission (SEC). Among the conditions include:
- If they don’t sell stock to the public.
- If they sell only a limited number of shares.
- If they meet other requirements.
Incorporated private companies could be in many business forms. It can be a corporation, an LLC or a partnership.
Shifting from Private to Public
India’s lenient economic policy also allows a private company to shift to public. However, an incorporated private company will have to be a corporation. Shifting an incorporated private company to the public is hounded by many complexities and as such requires company incorporation services in India.
While India allows a shift of an incorporated private company, the process is not as easy as one thought it would be. An integral part of the process requires shares repurchased and strict compliance of regulatory processes.
It is important to take note that going public means selling shares to the public. Such companies are subject to a long list of regulations and reporting requirements to protect investors, including the Securities and Exchange Commission (SEC) regulations.
It is also imperative for an incorporated private company going public to submit annual and quarterly reports for public posting.
After Becoming a Public Company
Incorporated public companies, as the name suggests, is open to the public. Public access is given for scrutiny of an incorporated public company’s business activities, stocks’ prices, executive policies and even minutes of the board meetings.
Among those who have preferential access to an incorporated public company are members of the legitimate working press and anyone who has a share of stocks – regardless of the volume or amount.
An incorporated public company is required to be transparent, at all times and should always adhere to government regulations.
Features of Incorporated Company Public or Private
Before jumping into a decision, it is necessary to lay down the salient features to understand is an incorporated company public or private.
- Incorporated private companies’ salient features:
- Free from meticulous public and media eyes.
- Small Board of Directors
- Directors could be the Shareholders, themselves
- No need for general stockholders meeting in rendering judgment calls
- The value of shares in a private company cannot be determined by an outsider, making it difficult for a private company shareholder to sell shares.
Incorporated Public Companies’ salient features:
- Vulnerable to meticulous public and media scrutiny
- Public knowledge on the value of each share
- Easy to buy and sell shares.
- The valuation of the company, in general, is easier to determine for public companies.
- Equity investment is shared by a large number of people.
- Corporate obligations in the form of debt must be paid.
- Shareholders don’t have to be paid in case of insolvency or bankruptcy.
Driving Factor to Shift from Private to Public
In India, most businesses start small and involve family members only. As such these family members are usually the same people occupying the board of directors, with few exceptions where few trusted advisors form the board of directors and the shareholders.
As the company grows bigger, the company would need more funds, thus the need to incorporate the company from private to the public where an expanding business can source out funds from equity sources (shares of stock). It is a better option than securing a loan.
Difficulties of Going Public
Shifting an incorporated company from private to public is a complicated process. It involves stocks offering to the general public, which could be done through an initial public offering. The process may take years and entail resources.
Veer away from complexities. Consider an India corporate service provider to take on the complicated and time-consuming process of shifting an incorporated company private to public.
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