Private vs public companies: what's the difference?

A private company is owned entirely by the company’s directors or a group of private investors. Most start-ups and SMEs fall into this category. 

A private company only needs one shareholder – although it can have more – and this can be the founder of the business.   

If a private company wants to raise capital to grow, it needs to turn to private investors, as it can’t put shares up for public sale. 

A public company is owned partly or entirely by the public. It can raise capital by selling its stock to the general public on the stock exchange.  

A public company needs to have at least two directors and a suitably qualified company secretary. A minimum of £50,000 is required as share capital to establish a public limited company.  

Public companies also need to hold an annual general meeting, during which they’re held accountable to their shareholders.  

Businesses very rarely start off as public companies. So, you’ll want to establish your business as a private company first and then focus on growing it.  

Once your company matures, you’ll have to choose whether it’s in your best interests to keep it private or turn it public through an initial public offering (IPO).   

There are pros and cons to each approach, and the right option for you will really depend on your circumstances.  

For example, if you generate a lot of profit, you might be able to bootstrap a private company through the next stage of growth. You might also have private investors lining up to inject cash into your business when you need it.  

On the other hand, if you want to raise a large amount of capital fast to help you reach your goals – and generate plenty of buzz around your business in the process – filing an IPO and going public could be the right option for you.