Public and Private Joint Stock Companies
With the advancement of modern urban life and the expansion of economic activities, individuals increasingly seek to pursue profit and collective interests through cooperation.
Over time, this approach led to the formalization of such cooperation through contracts and the establishment of companies.
Once registered, companies acquire legal personality. As a result, they enjoy rights and bear obligations similar to those of natural persons and may fully exercise the legal privileges granted to them.
One of the most important aspects of establishing a company is obtaining a national identification number, which helps prevent misuse. Today, companies are not permitted to operate legally without this identifier.
Management and Supervisory Structure in Joint Stock Companies
Types of Companies Under Iranian Commercial Law
Under Iranian Commercial Law, companies are classified as follows:
- Joint stock companies, including public and private joint stock companies.
- Cooperative companies.
- General partnership companies.
- Proportional liability companies.
- Mixed joint stock companies.
- Mixed non-joint stock companies.
- Limited liability companies.
Joint Stock Companies
Pursuant to Article One of the Amendment to Part of the Commercial Code, in joint stock companies, the capital is divided into shares, and the liability of shareholders is limited to the amount they have invested in the company.
Each portion of the divided capital is referred to as a share, and each shareholder is liable for the company’s debts only up to the value of their shares.
Joint-stock companies are divided into two categories: public and private. The concept and differences between these two forms are explained below.
Public Joint Stock Companies
Public joint stock companies are typically established for large-scale construction, industrial, and commercial projects. In such companies, founders raise part of the company’s capital by selling shares to the general public. In public joint-stock companies, at least fifty-one percent of the shares are held by the public, and the founders may offer a portion of the company’s capital to the public in the form of shares.
This process is carried out through a public announcement containing information about the company under formation. The announcement includes details such as the subscription period, the cash amount payable, the share price, and the designated bank and branch. These announcements are published in newspapers, enabling the public to subscribe for shares. Such notices are known as subscription announcements and constitute a fundamental element in the formation of public joint stock companies.
In this type of company, shareholders may freely sell their shares on the stock exchange and transfer ownership to others. Public joint stock companies facilitate large-scale economic activity by aggregating small individual investments into substantial capital. Transfer of shares in public joint-stock companies does not require the consent of other shareholders and can be carried out with relative ease.
Private Joint Stock Companies
A private joint stock company is one in which the entire capital is provided by the founders at the time of incorporation. The shares of such companies are not offered to the public and may not be traded on the stock exchange. However, private transactions of shares between individuals are permitted.
In private joint stock companies, the founders must fully subscribe to the capital, and a portion of it must be deposited with a bank.
Similar to limited liability companies, each shareholder in a private joint stock company is liable for losses only in proportion to their investment. There is no obligation for shareholders to satisfy the company’s debts from their personal assets.
Differences Between Public and Private Joint Stock Companies
- The establishment of a public joint stock company requires public subscription, whereas private joint stock companies are not permitted to raise capital from the general public.
- Private joint-stock companies are not allowed to list on the stock exchange, while public joint-stock companies may offer their shares on the market.
- The minimum number of directors and shareholders is three in private joint-stock companies and five in public joint-stock companies.
- The issuance of bonds is permitted only by public joint-stock companies.
- Transfer of shares in private joint stock companies requires the approval of the company’s directors and general assemblies. In contrast, in public joint stock companies, shareholder consent is not required for share transfers.
- The designation public joint stock company or private joint stock company must be clearly and legibly stated before or after the company name in all official documents, notices, and announcements.
Frequently Asked Questions About Public and Private Joint Stock Companies
A joint-stock company is a company whose capital is divided into shares, and the liability of shareholders is limited to the amount they have invested. Each share represents the extent of a shareholder’s responsibility for the company's debts. Joint stock companies are classified as public or private.
Public joint stock companies are formed for large-scale projects and finance part of their capital through public share offerings. Shares may be freely transferred without the consent of other shareholders, and listing on the stock exchange is permitted.
In private joint stock companies, all capital is provided by the founders. Shares are not offered to the public. Transfer of shares requires approval of the company’s management and assemblies, and stock exchange listing is not permitted. Shareholder liability is limited to their investment.
The key differences relate to methods of capital formation, stock exchange listing, minimum number of shareholders and directors, issuance of bonds, and conditions governing share transfers. The company type must also be clearly indicated in the company name.
A national identification number is required to prevent misuse and to ensure official registration. Without it, a company is not permitted to operate legally or benefit from its statutory rights. What is a joint stock company, and what are its main characteristics?
What are the characteristics of a public joint stock company?
What are the characteristics of a private joint stock company?
What are the main differences between public and private joint stock companies?
Why is a national identification number required for companies?
Is the ability to offer shares to the public the biggest distinction between the two?
Yes. One of the main differences is that a public joint stock company may offer shares to the public, while a private joint stock company generally cannot. Other legal and regulatory requirements also differ.
Is there a minimum number of shareholders required to establish either type of joint stock company?
Yes. The required number of shareholders depends on the type of joint stock company and the applicable corporate laws in the relevant jurisdiction.
Can a private joint stock company later become a public one?
In many jurisdictions, that is possible if the company satisfies the legal requirements and completes the necessary corporate procedures.
Does shareholder liability remain limited in both public and private joint stock companies?
Generally, yes. Shareholders’ liability is typically limited to the value of their shares, subject to the applicable corporate laws.
Are the management requirements different for public and private joint stock companies?
Yes. Public companies are often subject to additional governance and regulatory requirements compared to private companies.
Why do some businesses choose a private joint stock company instead of a public one?
Many businesses prefer a private joint stock company because it offers greater control over ownership and usually involves fewer regulatory obligations than a public company.
Can shares in a private joint stock company be transferred freely between shareholders?
That depends on the company’s articles of association and the applicable law. Many private companies place restrictions on share transfers.
What is one mistake entrepreneurs commonly make when choosing between them?
A common mistake is selecting a company structure without considering future financing plans, governance requirements, and long term business objectives.
Can foreign investors generally become shareholders in these companies?
In many jurisdictions, foreign investors may become shareholders, although the applicable laws may impose specific conditions or regulatory requirements depending on the industry and location.
What is the biggest misconception people have about public and private joint stock companies?
A common misconception is that a public joint stock company is always the better choice. In reality, the right structure depends on the company’s goals, ownership preferences, financing strategy, and regulatory considerations.