Differences Between Private and Public Corporations
From LawDepot Law Library
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The information contained within this article should not be construed as legal advice. If you require detailed information and/or advice about corporate law, trademark law, tax law or any other subject area considered in this article, please consult with an attorney in your area. LawDepot accepts no liability for errors and omissions contained within this article. This article is current to February 8, 2009.
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Differences between private and public corporations
The principal difference between a private and public corporation is that the shares of a public corporation are available for trade on a public exchange (such as a stock exchange), while those of a private corporation are not.
Private corporations are usually controlled by a small number of shareholders – generally the founder(s) of the corporation and possibly a small group of investors (as stipulated within appropriate securities regulations). Because the shares of a private company are typically concentrated in a few hands, control of the company is seldom an issue.
When a private corporation makes its shares available on a stock exchange and goes public, it usually sees an increase in the share price, which in turn often results in a large profit for the shareholders. There is a tradeoff for this profit however. While founders of a corporation can retain majority control as long as they possess more than fifty percent of the shares, when there are many public shareholders, there is often more pressure on those in control of the corporation to make decisions that will not jeopardize the stock of the company. Moreover, there are generally stricter transparency requirements for public corporations. These usually take the form of mandatory reporting of annual reports and financial statements.
Whether the shares of a company are private or public can also have taxation implications. Shares of a public corporation are not considered taxable Canadian property (unless twenty five percent or more of the shares are owned). This can be important when the shares are purchased from a non-resident of Canada. The sale of taxable Canadian property triggers s. 116 of the Federal Income Tax Act, which requires the purchaser to withhold tax from the vendor. There are strict penalties for failures to comply with this section of the Act, so it is important to know whether you are dealing with taxable Canadian property or not.
