Public vs. Private Sector: Differences Explained

Enterprises can either be public or private. It is significant to understand the difference between the two because the privacy rights of a consumer differ in both sectors. The main difference between both the enterprises is that shares of public sector companies are traded on the stock exchange while shares of private sector enterprises are not. There are several differences between both terms. In this article, we will learn the difference between the public sector and private sector enterprises. 

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What is a Private-Sector Enterprise?

Private sector enterprises refer to a segment of a national economy. These are owned and controlled by a private group of individuals or even a single entity. This sector comprises countless companies that are divided based on their size and functional capabilities. It includes small and medium enterprises, as well as large companies. They can be both privately or publicly traded organizations.

Generally, a private enterprise is formed by establishing a new company. However, there can even be the privatization of existing public sector companies. Typically, these companies are run with a singular motive of maximum profit generation. This plan is usually promoted by building a brand reputation. These enterprises must follow government norms and regulations. However, these are not controlled by government entities and usually focus more on quality than quantity.

Generally, private enterprises offer maximum employment in an economy. They mainly focus on the performance of an employee for his/her job stability. The list mentioned below consists of some of the most prominent private sector examples in an economy.

• Educational services like private schools, colleges and universities along with the numerous available professional courses

• Telecommunication services in a country

• IT services which are usually global in nature

• Courier services that function within and beyond national boundaries

• Infrastructural development of different sectors in an economy

What is a Public Sector Enterprise?

The single defining characteristic that students must understand while learning public sector meaning is that they are owned, controlled, and managed by government bodies. This ownership, control, and management by a government body can be complete or partial. Vitally, these companies usually come under specific ministries and are functionally administered by them. Notably, few public sector enterprises are set up by Parliamentary acts. These acts define both their functioning and control.

A public enterprise primarily focuses on providing cheaper goods and services to the general people. It includes central government bodies, state government entities, and even local government authorities. This sector can be broadly divided into two sections depending on its government control.

• Financed entirely by a government body with the help of revenues like taxes, excise, and other duties, etc.

• More than 51% share capital of an enterprise is owned by a government entity

Types of public sector organizations include departmental undertaking, statutory corporations, and government companies. Such organizations are primarily run to provide the following services:

• Generation of employment for a country’s population. It includes backward and minority classes, disabled individuals, etc.

• Postal services of a country

• Readily available and economically viable educational and health services

• Security to its citizens and geographical territories

• Railway services

Difference between Private Sector and Public Sector Enterprise: Tabular Form

Key Differences between Public Enterprise And Private Enterprise

1. Minimum Paid Up Capital: A company incorporated as a private company must have a paid-up capital of Rs. 1,00,000 whereas a company incorporated as a public company must have a paid-up capital of Rs, 5,00,000.

2. Minimum Number of Members: Minimum number of members required to form a private company is 2 whereas the minimum number of members required to form a public company is 5.

3. Maximum Number of Members: Maximum number of members in private companies is restricted to 200 according to companies act 2013,  whereas there is no restriction on the maximum number of members in a public company.

4. Transferability of Share: Transferability of share by the Article of Association in the case of a private company is completely restricted whereas there is no restriction on the transferability of shares in the case of a public company.

5. Issue of Prospectus: A private company is restricted to inviting the public for the subscription of shares. This implies that a private company cannot issue a prospectus whereas a public company is free to invite the public for a subscription of shares. This implies that a public company cannot issue a prospectus.

6. Number of Directors: A private company may have a minimum of 2 directors to manage the affairs of the company whereas in a public company there can be a minimum of 3 directors.

7. Business Commencement: A private company can immediately commence its business after incorporation whereas a public company cannot commence its business until the certificate to commencement of business is issued to it.

8. Share Warrants: A private company is not authorized to issue share warrants against its fully paid share whereas a public company is authorized to issue share warrants against its fully paid-up share.

9. Statutory Meetings:  A private company has no obligations to call the statutory meeting of the manager whereas a public company can call the statutory meetings and file the statutory report with the registrar of companies.

10. Special Privilege: A private company can enjoy some privileges which are not available to public companies.