Companies can be registered in two categories: public and private.
A public company is an entity whose shares are traded on a stock exchange, allowing ownership to be publicly bought and sold. These companies, having undergone an initial public offering (IPO), are subject to rigorous regulatory standards and must regularly disclose financial information.
Unlike public companies, private companies are not publicly traded and are typically owned by a small group of individuals or private investors. Private companies often have more flexibility in decision-making and face fewer regulatory requirements than their public counterparts.
Additionally, the primary distinction between a Public listed company and an unlisted company lies in their status on stock exchanges. A Public listed company, having undergone an initial public offering (IPO), has its shares available for trading on stock exchanges, providing liquidity and the ability for the public to buy and sell its shares.
While an unlisted public company may have a broader pool of private shareholders, it retains the advantages of not being subject to the extensive regulatory obligations associated with a public listing, offering a middle ground between public and private ownership.
In this blog, we'll explore the differences between private companies and unlisted public companies, two entities often mistaken for one.
An unlisted public company, also known as an unquoted public company, is a public company that has not listed its shares on any stock exchange. This means that its shares are not available for trading on the open market.
The criteria for defining an unlisted public company may vary between jurisdictions, but in general, it is a company that is registered as a public company, has a minimum share capital, and a minimum number of shareholders.
Unlisted public companies can still sell shares to raise capital, but they are not subject to the same listing requirements and regulations as listed companies. Unlike private companies, unlisted public companies do not have a limit on the number of shareholders they can have.
When comparing private companies and unlisted public companies, three key differences to remember are:
Private companies are entities with ownership restricted to a small group of individuals or a single entity. Unlike their public counterparts, these companies are not publicly traded on stock exchanges, meaning their shares are not available for purchase by the public. Ownership in private companies is often closely held, fostering a sense of control and cohesion. Decision-making authority is typically concentrated in the hands of a few key individuals, allowing for a more streamlined operational structure.
On the other hand, unlisted public companies share similarities with private companies as they are also privately owned. However, they differ in that they may have a larger pool of shareholders compared to traditional private companies. Despite their private status, these companies are not listed on the stock exchanges, making their shares unavailable for public trading. The ownership structure may still be closely held, but the number of shareholders can be larger than what is typically found in traditional private companies. This blend of private ownership and a broader shareholder base distinguishes unlisted public companies within the business landscape.
In terms of capital structure and fundraising, private companies typically rely on personal funds, loans, or investments from a small group of individuals to finance their operations. When it comes to raising capital, private companies rely primarily on private placements, angel investors, or venture capitalists. This can be a lengthy and selective process, but it offers advantages like maintaining control and avoiding public scrutiny. The absence of publicly traded shares means that private companies have a more limited ability to raise capital compared to their public counterparts.
On the other hand, unlisted public companies, while privately owned, enjoy more diverse options for capital acquisition. These companies can attract investments from a broader pool of private investors without the regulatory obligations associated with being listed on stock exchanges. This flexibility allows unlisted public companies to secure funding from a larger base while maintaining a private status. However, their options are generally limited compared to listed public companies, which readily access large pools of capital through the stock market.
Concerning exit strategies and liquidity, private companies typically navigate exits by selling the business or its assets, engaging in mergers with other companies, or transferring ownership within a family. However, liquidity events for shareholders in private companies tend to be less frequent and often necessitate meticulous planning.
In contrast, shareholders in unlisted public companies enjoy more diverse options for liquidity events. These may include private sales of shares or forming strategic partnerships. Despite not being listed on stock exchanges, unlisted public companies can achieve a certain level of liquidity due to a broader pool of potential buyers, offering shareholders increased flexibility in realizing the value of their investments.
While both structures provide unique advantages and challenges, the choice between them ultimately depends on the business goals, capital needs, and risk tolerance of the individuals involved. Private companies thrive on agility and confidentiality, while unlisted public companies benefit from a larger investor base and greater transparency. Understanding these differences empowers entrepreneurs and investors to navigate the business landscape with confidence, choosing the path that best leads them to success.