Public vs. Private Sector Companies: Types and Features

A Company is a legal group created by an individual or a group of individuals to work and regulate in a commercial market. A company can be coordinated in many ways for financial liability and tax purposes, depending on the Companies Act of its management. A company's branch usually decides which corporate structure to choose, such as partnership, company, or corporation. In such cases, the company can be considered a kind of business. On the basis of shareholders, the company is divided into- Private Sector Company and a Public Sector Company. 

Types of Companies vary according to their ownership, and there are millions of companies across the globe having billions of employees. Before moving on to its types, let’s first understand what a company is! A company is a legal body that represents the association of people. These people can be naturally or legally linked with each other for some specific objectives under consideration. Additionally, the members of a company share the same interests and work to achieve some pre-declared goals.

Types of Companies

Moving on to the types of companies; the companies categorize as:

1. Private

2. Public

Private companies are the private sector organizations and the public ones are the public sector companies. A public sector organization further classifies as departmental undertakings, government companies and others. Now, let us move on to a more detailed understanding of the meaning of the private sector and public sector companies.

Private Sector Company 

A Private Sector business is an organization that is established for the motive of profit and is owned by a private individual or a group of individuals and enjoys very little government interference. The Private Sector is made up of households, businesses and organizations that include jobs in various areas such as retail, construction and manufacturing. They are owned and controlled by individuals or businesses, so companies in this category focus on entrepreneurial activity and take risks to create jobs and generate profits. You have the incentive to be competitive and efficient. 

That part of the economy that is owned, managed, and controlled by an individual or business is called the Private Sector. Private companies are categorized by size, such as SMEs and large companies being either private or listed companies. They can be created in two ways, either by starting a new business or privatizing a public company. In this sector, there is no job security for the employees as there is for the Public Sector employees. 

Public Sector Company 

The Public Sector refers to all governmental organizations, including federal, state, and local governments. Public Sector Organizations focus on services to the general public, including education, welfare,  legal systems, employment, natural resources and medical services. 

The sector responsible for providing government goods and services to the general public services such as unemployment benefits, child and family services, and insurance regulations are all part of the Public Sector. Companies, agencies and companies are wholly owned, controlled and supervised by the government, whether central, governmental or local. There are two types of public institutions. That is, either the state is fully funded from the income it earns from collecting taxes, surcharges, membership fees, etc., or the state holds 51% or more  of the total equity capital of its subordinates. Various ministries of the company. The company was founded with a service motive. Civil servants have employment security and receive severance pay such as allowances, benefits, bonuses, pensions and pension funds. This is the largest sector working on empowering people by providing them with the following services: 

•  Employment creation 

•  Postal service 

•  Providing inexpensive education and medical facilities  

•  Provide security 

•  Rail service

Public Sector Organizations are of three forms:

1. Departmental undertakings

2. Public corporations/statutory corporations

3. Government company 

1. Departmental Undertakings:

Departmental organizations are one of the most ancient forms of public enterprises, and they are also known as a department of the government. The existence of these depends on the government and the ministry controls their work. The companies that are the departmental organizations are Railways, Post-service, some Telephone service, and others. Either the central or state government has full control over the working of this public sector organization. The treasury of the government has access to the revenue of departmental undertakings. Further, the annual budget of the government finances these Departmental Undertakings.

The best thing about this form of public enterprise is that the formation of a departmental undertaking is pretty easy, and it does not require any registration. The accountability of these organizations is also high as the parliament directly controls them, i.e., their matters get discussed in the parliament.

2. Public or Statutory Corporation:

Public or Statutory Corporations are the types of public sector formed by the parliament’s special action or state/central legislatures. Additionally, the government finances these types of public sector undertakings, and the legislature decides its objectives, powers, limitations and other rights. Public/ Statutory Corporations are - Indian airlines, State Bank of India, Oil & Natural Gas Corporation, etc.

A Statutory Corporation is a separate entity that forms legally, and it also automatically incorporates with the passing of any act in the Parliament. Either state or the central government decides the operations of statutory corporations. Moreover, nothing in these corporations happens behind their backs, thus ensuring that the public interests stay protected.

A Public Corporation independently manages its affairs with higher flexibility. It is also far away from red tape due to the lower file work and lesser need of the formalities before taking any major or minor decision.

3. Government Companies:

Government Companies are the types of public enterprises in which either state or central government holds a minimum of 51% of the paid shares. These types of public sector undertakings follow the provisions of the Companies act, just like the other registered ones. The Government Companies are Hindustan Machine tools, State Trading Corporation, etc.

The registration of the Government Companies accomplishes under 1956’s Companies Act, and all its provisions apply to them. As the government partially or wholly owns them, their shares are in the name of the president of the nation.

To manage these types of public sector undertakings, the government and other shareholders nominate the board of directors. Despite being controlled and managed by the government, it stays far away from political interference and is financed and audited, just like the other private sector companies.

Government Companies can also have access to the technical, management, and other expert skills of the private sector organizations by collaborating with them.