When private limited company needs to be converted to public limited company

Difference between private limited and public limited companies

To some extent the form of private limited company may have advantages for your business. This is a perfect form for small and medium sized companies with one or several members. The amount of minimum share capital for private limited company is less than for public limited company. In general, it is much easier to start your business being private limited company.

As your company grows and you need to attract more funds (for example, through trading on a stock exchange), this form may no longer be suitable for you. Only shares of public limited companies can be traded publicly. However, it is possible to convert a company to another form.
If the company is converted from private limited company to public limited company, the management has to be ready to comply with the relevant legal requirements applicable to publically traded companies.

To be listed on a stock exchange and offer shares, a company needs to issue a prospectus. This is a formal document and contains a detailed information about the company, its group, management as well as risk management issues.

The management of public companies usually consists of board of directors, CEOs, accountants, advisors, etc. Once the company becomes public, the owner of the company cannot make decisions independently. Even majority shareholders have to account on minority shareholders’ decision regarding company management issues. The board of directors is no longer under a sole control of owners.

Being a public limited company means that the company will be supervised by regulatory authorities and stock exchange on which its shares are listed. This means that the management shall be more careful to ensure that the company strictly complies with regulatory requirements. Public limited companies make quarterly and annual reports about its business operations, compensation of directors and officers, finances and plans that are to be revealed to shareholders. The financial results cannot be held privately any longer.

The liability of the company directors and officers is increased in comparison to private limited companies as public companies are responsible for ensuring the increase of profits of shareholders and disclosure of information about its operations. The company’s management can be even liable for self-dealing and hiding information.

These all factors make public companies rather expensive in terms of operation and management activities. The number of managers and officers is also increased as owners will still need to think about business operations and generating profits, while other personnel will need to make sure the company is compliant with legal requirements. Nevertheless, this form is popular among large technological, oil and gas, natural resources, investment and other companies as they benefit from being traded publicly.

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