What are the Disadvantages of a Public Company?

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1. Difficulty of formation:

It is comparatively more difficult to set up a public company. A prospectus had to be issued and filed. Allotment of shares has to be done in accordance with legal guidelines. A certificate of commencement of business is required and business cannot be started immediately after incorporation of the company.

2. Delay in decisions:

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There are several directors and managers in a public company. Deci­sions are taken in meetings of the Board of directors with the consultation of concerned officials. The decisions may often get delayed.

3. Lack of secrecy:

A public company has to file several documents with the Registrar of Companies. Its annual accounts are published and its records are open for inspection to public. Therefore, business secrets cannot be guarded effectively.

4. Legal formalities:

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A public company is required to observe several legal formalities. There is excessive Government control over public companies. Flexibility of operations is re­duced.

5. Lack of motivation:

There is divorce between ownership and management in a public company. Paid officials do not have the incentive to work hard and increase efficiency of opera­tions.

It may not be possible to maintain personal contacts with customers and employees. There can be a clash of interests among shareholders, debenture holder and managers of the company.

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6. Unhealthy speculation:

Shares and debentures of public companies are bought and sold daily on stock exchanges. Clever and dishonest people may indulge in reckless speculation in these securities for private gain. There is lack of protection to minority shareholders.

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