The decision between registering a public company or a private company is one of the most important decisions entrepreneurs and investors make when starting or expanding a business in Nigeria. Both types of companies are recognized under the Companies and Allied Matters Act, 2020 (“CAMA”), but they differ in ownership structure, fundraising ability, regulatory obligations, and management requirements.
In Nigeria, most small and medium-sized businesses are registered as private companies because they are easier to manage and have fewer compliance obligations. Public companies, on the other hand, are usually larger businesses that intend to raise funds from the general public through the capital market.
Understanding the differences between these two types of companies is important for business owners, investors, lawyers, and entrepreneurs because the structure chosen can affect fundraising opportunities, governance, regulatory compliance, and business growth.
What is a Private Company?
A private company is a company whose ownership is privately held by individuals, families, founders, or private investors. Its shares are not offered to the general public, and the transfer of shares is usually restricted by the company’s articles.
Under CAMA 2020, a private company is commonly registered with the suffix “Limited” or “Ltd.” Most businesses in Nigeria operate as private companies because they are flexible and easier to manage.
A private company may be owned by a single person or multiple shareholders. Following the reforms introduced by CAMA 2020, a private company can now be incorporated by only one person, making it easier for entrepreneurs and startups to formalize their businesses.
Private companies usually raise capital through:
- personal savings;
- contributions from shareholders;
- loans;
- venture capital investments; or
- private investors.
Because their shares are not publicly traded, members of the public cannot freely buy shares in a private company on the stock exchange.
What is a Public Company?
A public company is a company that can offer its shares to the public. Its shares may be listed and traded on the Nigerian Exchange Group (NGX), formerly known as the Nigerian Stock Exchange.
A public company is usually registered with the suffix “Public Limited Company” or “Plc.” Unlike a private company, there is no limit to the number of shareholders a public company can have. Public companies are heavily regulated because they receive investments from the public. They are subject to stricter rules under CAMA 2020, the Investment and Securities Act, and regulations issued by the Securities and Exchange Commission (SEC).
One major advantage of a public company is its ability to raise large amounts of capital from investors through public offers, rights issues, and stock market transactions. Examples of public companies in Nigeria include banks, telecommunications companies, manufacturing companies, and large financial institutions listed on the Nigerian Exchange.
Differences Between a Public and Private Company in Nigeria
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Ownership Structure
One of the biggest differences between a public company and a private company is ownership structure. In a public company, ownership is distributed among members of the public through shares that may be traded on the stock exchange. This means investors can easily buy and sell shares in the company.
A private company, however, is owned privately by a limited number of individuals, founders, family members, or private investors. The general public does not have access to purchase shares in the company through the stock market.
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Appointment of Company Secretary
Another important difference between a public company and a private company in Nigeria is the requirement for a company secretary. Under the Companies and Allied Matters Act (CAMA) 2020, every public company is required to appoint a qualified company secretary.
A private company, especially a small private company, is not required to appoint a company secretary under CAMA 2020. This gives private companies more flexibility and reduces administrative costs. However, many private companies still choose to appoint a company secretary for efficient corporate administration and compliance purposes.
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Share Transfer and Public Trading
One of the biggest differences between a public company and a private company is ownership and access to shares. In a public company, shares can be offered to the general public and traded freely on the stock exchange.
While private companies often restrict share transfers through their articles of association and are not freely available to the public. Existing shareholders are often given priority rights before shares can be transferred to outsiders.
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Number of Shareholders
Under the Companies and Allied Matters Act (CAMA) 2020, a private company is generally limited to a maximum of 50 shareholders, excluding employee-shareholders. A public company does not have any restriction on the number of shareholders it can have. This allows public companies to attract investments from a large number of people and institutions.
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Regulatory and Compliance Requirements
Public companies are also subject to stricter regulatory requirements. They must comply with the rules of the Securities and Exchange Commission (SEC), corporate governance regulations, disclosure requirements, and stock exchange rules where applicable. Private companies generally have fewer compliance obligations and enjoy more operational flexibility.
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Listing on Stock Exchange
A public company may list its shares on the Nigerian Exchange Group (NGX), allowing members of the public to trade its shares openly. A private company cannot list its shares on the stock exchange because its ownership remains private and restricted.
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Minimum Share Capital Requirement
The minimum issued share capital requirement differs for both companies under Nigerian law. A private company must maintain a minimum issued share capital of ₦100,000. A public company is required to maintain a minimum issued share capital of ₦2,000,000 because of the larger scale of operations and public investment involved.
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Ability to Raise Capital
Another important distinction is fundraising. Public companies can raise funds from the public through the sale of shares, bonds, and other securities. This gives them easier access to capital for expansion and large-scale operations. Private companies usually depend on loans, shareholder contributions, or private investments to finance their operations.
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Financial Disclosure and Reporting
In terms of disclosure and transparency, public companies are expected to provide greater accountability because they deal with public investors. They are required to publish financial reports, hold statutory meetings, and comply with strict reporting obligations. Private companies have fewer disclosure obligations and enjoy greater confidentiality in their operations.
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Decision Making and Management Flexibility
Decision-making is often faster in private companies because ownership is concentrated among a smaller number of people. Public companies may experience slower decision-making processes due to regulatory requirements, shareholder approvals, and corporate governance procedures.
Similarities Between Public and Private Companies
Despite their differences, public and private companies share several important features. The similarities include:
- Both are recognized as separate legal entities under Nigerian law. This means the company exists independently from its shareholders and directors.
- Both types of companies can own property, enter contracts, sue, and be sued in their own names.
- They are both managed by directors and owned by shareholders.
- Both companies are required to comply with provisions of CAMA 2020 and other applicable laws in Nigeria.
- They can both generate profits, employ workers, pay taxes, and conduct lawful business activities.
In addition, shareholders in both public and private companies generally enjoy limited liability, meaning they are only liable to the extent of their investment in the company.
The Role of Lawyers in Company Formation and Compliance
Lawyers play an important role in advising business owners on the most suitable company structure for their business goals.
A lawyer can assist with:
- company incorporation;
- drafting memorandum and articles of association;
- preparing shareholder agreements;
- regulatory compliance;
- corporate restructuring;
- conversion of private companies to public companies;
- SEC and CAC filings; and
- corporate governance advisory services.
Legal guidance is important for public companies because of the complex regulatory and compliance obligations involved.
Final Thoughts
The major difference between a public company and a private company in Nigeria lies in ownership, fundraising ability, and regulatory obligations. A public company can offer its shares to the public and is subject to stricter regulations, while a private company restricts ownership and enjoys greater flexibility in management and operations.
Choosing between a public and private company depends on the goals, size, funding needs, and long-term vision of the business. For many startups and small businesses, a private company provides flexibility and ease of operation. For larger businesses seeking significant investment and expansion opportunities, a public company may be more suitable.
Before choosing either structure, it is advisable to seek professional legal and financial guidance to ensure compliance with Nigerian laws and to position the business for long-term growth and success.
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