Public vs Private Companies: What’s The Difference?

Wondering about the differences between public and private companies?

The main difference is the public are able to invest in public companies, but they can’t invest in private companies. In other words, public companies can be listed on the New Zealand Stock Exchange (NZX). 

With this power comes responsibility—as a result, public companies have more paperwork when it comes to disclosure requirements.

While both private and public companies are regulated by the Companies Office, they also answer to the Ministry of Business, Innovations and Employment (MBIE). 

There are also liability differences and lots of other regulatory differences, which we’ll get into below. But first, let’s identify what a public or private company is.

How To Tell Whether A Company Is Public Or Private 

Firstly, companies can be divided into two categories, private (otherwise known as proprietary) or public. 

Within the private category, private companies are divided further into a large or small private company.

Small or medium sized businesses are generally private companies.

If You’re A Private Company, Are You Big Or Small?

This is how you figure out whether your private company is a big or small one!

To be a large private company according to the Financial Reporting Act 2013, at least one of these requirements must be met: 

Consolidated revenue	$30 million or more
Consolidated gross assets	$60 million or more
Company (and entity it controls) employees	100 or more

And to be a large private company, you need to have met the below requirements. 

Consolidated revenue	$25 million or more
Consolidated gross assets	$12.5 million or more
Company (and entity it controls) employees	50 employees or more

Structural And Shareholder Differences Between Public & Private Companies

For public companies:

• There is no limit to the amount of shareholders you can have
• There must be a minimum of 3 directors, 2 of whom reside in New Zealand 
• There must be a minimum of 1 company secretary
• There needs to be a registered office accessible to the public 

For private companies:

• There is a limit of 50 shareholders who are not employees of the company
• There must be a minimum of 1 director 
• A company secretary is optional
• A registered office is still a prerequisite, but it doesn’t have to be accessible to the public

Prospectus Requirements For Public & Private Companies

If you are operating a public company, you will need to release a ‘prospectus’ to shareholders which includes details on the company’s financial risks, profits, losses, assets, liabilities, business model and other information. 

Private companies, on the other hand, can’t raise funds in any way that would require a prospectus. This limits a private company’s options when raising capital. 

Reporting Obligations For Public & Private Companies

A public company must prepare both a director’s report and a financial report on an annual basis and have this independently audited.

Meanwhile, a private company is generally off the hook. A private company only needs to meet reporting obligations if they are a ‘large company’. 

What Else Does a Public Company Have To Do?

If you’ve ever invested in shares, you would have received a copy of the public company’s constitution, financial statements, and directors reports. This is actually an obligation for public companies to report to their shareholders. 

As well as this, public companies have to hold annual general meetings and manage a share register. 

Why Would You Switch From A Private Company To A Public Company?

It is common for private companies to switch to a public company when they reach the limit of shareholders permissible, and wish to grow. There are however, many more differences that you should consider first, and discuss with a lawyer. 

If you would like a consultation on your options moving forward, you can reach us at 0800 002 184 or [email protected] for a free, no-obligations chat.

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