Public Sector V/S Private Sector Enterprise
Enterprises can either be public or private. It is significant to understand the Difference Between Public and Private Sector because a consumer's privacy rights 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.
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
The public sector is different from the private sector in that the public sector is government-owned and focuses on public welfare, whereas the private sector is owned by individuals or businesses and aims to generate profit.
Difference between Private Sector and Public Sector Enterprise: Tabular Form
Private Company vs Public Company
Ownership: A private company is owned by a small group of investors, individuals, or families, while a public company is owned by shareholders who can buy and sell shares on public stock exchanges.
Share Trading: Shares of a private company are not traded publicly, whereas shares of a public company are listed on stock exchanges and can be freely bought or sold by the public.
Regulation: Public companies are subject to more stringent regulatory requirements, including regular financial disclosures and audits, while private companies face fewer regulations and less public scrutiny.
Size and Scope: Public companies tend to be larger in terms of revenue, employees, and market presence, while private companies are typically smaller and more limited in scope.
Funding: Public companies can raise capital by issuing shares to the public, whereas private companies raise capital through private investors, venture capital, or loans.
Key Differences between Public Enterprise and Private Enterprise
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.
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.
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.
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.
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.
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.
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.
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.
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.
Special Privilege: A private company can enjoy some privileges which are not available to public companies.
FAQs on Difference Between Public and Private Sector
1. What is the main difference between the public sector and the private sector?
The core difference lies in ownership and primary motive. The public sector consists of enterprises owned, managed, and controlled by the government with the primary objective of public welfare. In contrast, the private sector comprises businesses owned by private individuals or groups, with the main goal of generating profit.
2. What are the primary objectives of enterprises in the public versus the private sector?
Public sector enterprises focus on providing essential services to the public, ensuring balanced regional development, and creating employment opportunities. Their motive is service-oriented. Private sector enterprises, on the other hand, aim for profit maximization, market leadership, innovation, and building a strong brand reputation.
3. Can you provide examples of services and industries typically found in each sector?
Certainly. Common examples include:
- Public Sector: Indian Railways, Postal Services, Police and Defence services, state-owned electricity boards, and government hospitals and schools.
- Private Sector: Information Technology companies (like TCS, Infosys), telecommunication providers (like Reliance Jio, Airtel), private banks (like HDFC, ICICI), and most retail and e-commerce businesses.
4. How do the public and private sectors differ in terms of funding and employee benefits?
The differences are significant:
- Funding: The public sector is funded through public revenue, such as taxes, duties, and government borrowings. The private sector raises capital from private investors, bank loans, issuing shares, and retained profits.
- Employee Benefits: Public sector jobs are known for high job security, fixed salaries, pensions, and other allowances based on seniority. The private sector often offers more competitive salary packages, performance-based bonuses, and faster career growth based on merit.
5. What is the difference between a public sector bank and a private sector bank?
A public sector bank (like the State Bank of India) is one where the majority stake (more than 50%) is held by the government. They often focus on broader objectives like financial inclusion and serving rural areas. A private sector bank (like HDFC Bank) is owned by private shareholders, and its primary focus is on profitability, customer service, and catering to its target market.
6. How does a 'public limited company' differ from a 'public sector enterprise'?
This is a common point of confusion. A public sector enterprise is defined by government ownership (e.g., ONGC, BHEL). A public limited company, however, is part of the private sector. The term 'public' here means its shares can be freely bought and sold by the general public on a stock exchange. Ownership remains with private shareholders, not the government. Examples include Reliance Industries Ltd. and Tata Consultancy Services.
7. Why does a country's economy need both a public and a private sector to function effectively?
Both sectors play complementary roles essential for a balanced economy. The public sector provides the foundational infrastructure (roads, power), essential services (defence, law), and regulatory framework that the private sector needs to operate. The private sector drives economic growth, fosters innovation, creates competition, and offers a wide variety of goods and services, leading to efficiency and consumer choice. A healthy mix ensures both social welfare and economic dynamism.
