1. Difficulty of formation:
It is comparatively more difficult to set up a public company. A prospectus had to be issued and filed. Allotment of shares has to be done in accordance with legal guidelines. A certificate of commencement of business is required and business cannot be started immediately after incorporation of the company.
2. Delay in decisions:
There are several directors and managers in a public company. Decisions are taken in meetings of the Board of directors with the consultation of concerned officials. The decisions may often get delayed.
3. Lack of secrecy:
A public company has to file several documents with the Registrar of Companies. Its annual accounts are published and its records are open for inspection to public. Therefore, business secrets cannot be guarded effectively.
4. Legal formalities:
A public company is required to observe several legal formalities. There is excessive Government control over public companies. Flexibility of operations is reduced.
5. Lack of motivation:
There is divorce between ownership and management in a public company. Paid officials do not have the incentive to work hard and increase efficiency of operations.
It may not be possible to maintain personal contacts with customers and employees. There can be a clash of interests among shareholders, debenture holder and managers of the company.
6. Unhealthy speculation:
Shares and debentures of public companies are bought and sold daily on stock exchanges. Clever and dishonest people may indulge in reckless speculation in these securities for private gain. There is lack of protection to minority shareholders.
FAQs
The main weakness of the public corporation stems from the conflicts of interest between managers and shareholders.
What are the advantages and disadvantages of public company? ›
Public Companies
- Advantages. Ability to raise funds by selling stock. ...
- Disadvantages of Public Companies. Increased government and regulatory scrutiny. ...
- How Companies Become Public. The main process of becoming a public company is by selling stocks to the public through an IPO.
Disadvantages of Public Ownership
- Your books are open to scrutiny.
- Higher accounting costs.
- Majority of independent directors.
- Ownership valuation subject to market fluctuation.
- You will lose some flexibility in operating your business.
The main weakness of the public corporation stems from the conflicts of interest between managers and shareholders.
What are the disadvantages of a public company as compared to a private company? ›
The disadvantages of public companies are that owners have less control and that they have more requirements for reporting. There is also an increase in liability, and the overall process for becoming public is extensive.
What are 3 disadvantages of a public limited company? ›
Disadvantages of a Public Limited Company
- Loss of control. The owners of the business are now the shareholders and you are accountable to them. ...
- Higher set-up costs. ...
- Increased legal responsibilities. ...
- More complex accounting requirements. ...
- Vulnerability to the market.
Five Top Disadvantages of Private Limited Company Ownership
- You must be incorporated with Companies House. ...
- Complicated accounts. ...
- Shared ownership. ...
- Your company must be in compliance with strict administrative requirements. ...
- Limited stock exchange access.
No guaranteed results
With any marketing campaign, success is not guaranteed. The biggest disadvantages of public relations relate to measuring the success of your efforts. If your strategy is not well-executed, you run the risk of getting no response from your target audience whatsoever.
What are the disadvantages to being a public company quizlet? ›
What are the main advantages and disadvantages of going public? The main advantages are that public stocks have higher liquidity, and firms can raise more capital and raise it more easily. The disadvantages are loss of control and disclosure costs.
What are the disadvantages of taking public company private? ›
Downsides of going private include: Alternate sources of capital: Being traded on the markets provide companies with a theoretically easy way to raise funds and support business growth. A private company will have to approach lenders, self-finance or explore other alternatives.
Ability to Raise Capital - Publicly held companies are able to raise capital by creating and selling shares. Unlike loans, money from shares does not need to be repaid. Shares can also be used as compensation for employees, increasing employee morale. If the company does well, they will benefit also.
What are three 3 differences between a public company and private company? ›
Differences Between a Private vs Public Company
The main categories of difference are trading of shares, ownership (types of investors), reporting requirements, access to capital, and valuation considerations.
Are public companies better than private? ›
The primary advantage of a publicly-traded company is that it can tap into the market by selling more shares. The primary advantage of a privately traded company is that it does not need to answer to any stockholders, and there is no need for disclosures. Publicly traded companies are big companies.
Is it better to have a private or public company? ›
IPOs give companies access to capital while staying private gives companies the freedom to operate without having to answer to external shareholders. Going public can be more expensive and rigorous, but staying private limits the amount of liquidity in a company.
What are the advantages of a public company? ›
One of the main benefits of a public limited company is the ease with which a shareholder can transfer shares to other legal persons, whether they are people or organisations in India or abroad. In addition, for the purpose of ensuring the continued existence of the corporation, the director may also be replaced.
What are some advantages of a public company? ›
The Benefits of Going Public
- The company can raise a lot of cash and FAST. ...
- This cash influx helps lower the company's debt to income ratio and also provides more funds for things like advertising, better compensation packages, and development of new products.
Advantages Of A Public Limited Company
- Raising Capital Through Public Issue Of Shares. ...
- Widening The Shareholder Base And Spreading Risk. ...
- Other Finance Opportunities. ...
- Growth And Expansion Opportunities. ...
- Prestigious Profile And Confidence. ...
- Transferability Of Shares. ...
- Exit Strategy. ...
- More Regulatory Requirements.
