A public company is a type of company, which is registered by the instrument of the law, and is created by the statue. The laws of the corporation Act that are formed to govern a public company govern it. The Government Company is a type of company in which the government holds the major share or in which the government has substantial interest. In case of such companies the government holds more than 51% of the total shares and has the major voting power. There are a large number of differences between the government company and the public limited company. There are more benefits associated with working for a government company and the job is secured in this kind of business (Abbott & Kantor 2017). While shifting from a public limited company to a government company there can be various changes that can be noticed. Few of the differences are stated below in details given under-
The major difference is that individuals own public companies and the government owns the government companies. Public companies are those companies whose shares are listed on the stock exchange and who can issue such shares to the public to raise money from the same. In case of government companies, the articles of association and memorandum of the company govern them. They are not an extension of any statue of the law unlike public companies. In case of government, companies there are a large amount of control, that can be established like judicial control legislative control and there is too much intervention of the government. It makes it difficult for these companies to perform well as per the discretion of the management. The board of director and other people who are in managerial position have little or no say in the management of these companies. In case of public companies, the government intervention is the least so it gets easy to perform for these companies and there are fewer rules to be followed ultimately. The shareholder who is investing their money in the company owns the public companies. The main aim of such companies is to maximize the wealth of the investors; this is return helps in improving their stand in the company and works for the overall betterment (Alexander 2016). The objectives of the government owned companies are often defined and they work for the same. They are often formed to provide services to the general public that are controlled by the management. Hence, we see that there is huge difference between the structure of both the companies and that may eventually affect their overall functioning. The returns that are filed by the two companies are different, the rules and regulations are different. In addition, we can see that the government-based companies often have an upper hand over the public limited companies (Melvin & Norrbin 2017). There are many rules that a public company has to follow that might affect its overall functioning. In case of defaults, they are penalized. There are large numbers of companies that were previously public limited companies and based on their overall performance were eventually absorbed as government companies. There are less rules and regulations in case of a government company than a public company (Auken 2016).
In case of public company, the management that consists of the shareholders and the board of directors manages the financials. The directors take important decisions that are ratified by the shareholders. There is no third party intervention in this case. In case of Government Company, the government takes the major financial decisions and they appoint the important directors of the company. Thus, these are few major differences between working of a government company and any public company. The person who makes a shift will have both pros and cons of the decisions. Government jobs are more secure and in case of public companies, there is more return in comparison to the government company. The risk element is also high in that matter. Overall both the companies functions on the same line of operation taking the requisite steps to maximize the satisfaction of the related parties to the company (Bae 2017).
The shareholders are the people who are investing in the company and the company pays them their return. They bought the shares of the company, than they are owners of the company. In a capitalist society the aim of the companies are to opt for wealth maximization that can help in improving the return that the shareholder gets (Malone, Tarca & Wee 2016). Shareholder maximization also means that the company is earning enough profit and once they earn more profit they can pay more returns to the shareholders. Therefore, in way the overall profit is increasing. The maximization of the shareholder wealth will be common goals between the manager and the investors (Belton 2017).
The main idea behind wealth maximization is that they are trying to increase the price of the stocks and improve the position of the company in the market. Once the stock price improves, the shareholders of the company will be benefited (Malone, Tarca & Wee 2016). With the increase in the share price, the firm value will also increase, the position of the shareholders will also improve, and the market share of the company will be benefited. There are many arguments on whether this policy of wealth maximization is profitable in the end or not. The managers who are working with the company, who are forming the policies of the company, often forms for this basis of wealth maximization as their main objective (Charlton et al. 2017).
It is often a perception that the managers are the real owners of the company, but the shareholders who are the owning the shares of the company are the shareholders of the company. The managers are the servant of the shareholder. It is important that there is a balance between the two parties so that the company functions properly (Belton 2017). While formulation of policies, there are a large number of provisions that the managers must keep in mind. The following the advantages of opting for share wealth maximization-
The most important ides behind wealth maximization is that the company makes profit for the owners. As the profit increases the return to the shareholder increases, the prices of the stock also goes up and the indirectly the wealth is maximized. The profit will also increase (King & Carey 2017).
In case there is clarity in the goals, proper strategy will help in creating the required consistency in the overall business. If wealth maximization were the priority of the company, then the policies of the company would be consistent with this. This will help the company in better strategizing the entire objectives of the business (Dichev 2017).
Unemotional business goal
With the advent of aiming for the shareholders wealth maximization, it becomes a very unemotional business goal for the company. The company is not opting for any kind of goals like becoming the best company in their sector or becoming the leader of their business zone. Thus, it is an unemotional business goal, which would help in developing better business practices and make the company more strong (Guragai et al. 2017).
Better financial position
If the wealth maximization is the goal, which means that the business will pay better return to the shareholders and the stock prices will improve. This means that more and more investors will be ready to invest in the company. This will help in improving the overall financials of the company. So indirectly, the company will be befitted at large when they aim for shareholder maximization. Market price is an indicator of the profitability, progress and prosperity of the company and that is reflected in the overall profit that the company earns and the return that it provides to the shareholders (Dichev 2017).
Better Resource allocation
Shareholder wealth maximization helps in better allocation of the resources and hence the company makes optimum use of the options that are available to them. This will help in reduction of the wastage of the resources and helps the company in making better choices for the betterment of the company and the shareholder (Guragai et al. 2017).
The major disadvantages that is associated with share wealth maximization are-
Bad practices of business
One of the major drawbacks that are associated with wealth maximization is that the companies often resort to bad business practices. It leads to unsustainable business practices. These policies might have short term gains but in the long run these policies are dull and often leads to unsolicited business practices and approach on part of the management and the related party (Bromwich & Scapens 2016). In some cases, there are also reports that there might be falsification of the financial information to show that they are earning profits for the business and give a false impression to the investors to invest more money in the company. Hence, this leads to a large number of unethical practices that might affect a company. The great recession was caused because of the excessive focus on the shareholder and their financial position (Hopkin 2017)
Customer is not given importance
One of the major disadvantages in this kind of business is that the customers are not given importance. The focus of the management is only on the shareholders are their betterment. The companies often end by doing such things that are not optimum for the consumers. This is wrong in the end because along with the investors, the companies need strong customer base that will help in improving their business, else they might end up earning very less profit in the future (Kew & Stredwick 2017).
Another disadvantage is that it might hurt the employees who are working for the company. If the total cost is low, than only the overall profit will be maximized. The companies often resort to cost cutting, by putting the employees in a discomfort position. Often the companies cut employee wages and other benefits. This is one very big issue, because if the employees are not happy they will not work for the company and its betterment (Linden & Freeman 2017).
Involvement of Corporate Politics
The aim of maximization of the wealth often leads to corporate politics between the leaders and the members. Often there is intervention by third parties like politicians and other parties, who take interest in the overall financials of the company and tries to manipulate the same with their actions. The politicians often work for these corporations, indulging in many foul practices, rather than working for the betterment of the citizens of the country (Maynard 2017).
Thus, we see that these are the few shares of advantages and disadvantages that are associated with maximization of wealth and the main aim of the managers should be to strike a balance. It should be one of the important criteria that they want to maximize the wealth but is should never occur at the cost of other employees and consumers (Venezia 2017).
After the entire discussion and analysis, one thing can be said that it is an important part and the companies cannot avoid the same. The investors are investing their money for the company, so they must be given their share of return. It indirectly will also help the company in making their financial position strong and better (Werner 2017). The companies at large should resort to such practices that will help in maximization of the wealth and take care of the needs of the consumer and the other people who are depending on the company. In this way, the goals will be achieved and the sentiments would be saved. The management should also see that they so not indulge in any kind of such activities that might destroy the image of the company, and its overall financial position in the market (Muller, Ward & Moodley 2017).
Based on the suggestions that have been given by the managing director of the company, that covers more focus on cash flow, risk adjusted returns to the shareholders of the company and improvement of performance in various areas that will eventually help in improving the position of the company (Muller, Ward & Moodley 2017). The company can do so but it has to strike a balance between the steps that are taken and the objectives that are defined. The company can go for improvement of the performance but that should not aim just at improving investor return but focus should be on the overall development of the company. It is important that the return that is provided is risk adjusted. However, in all types of business the investors who are investing their money have to face certain amount of risk (Minnis & Sutherland 2017). Thus, the main objective of the company should be to focus their strategies on wealth maximization keeping the above advantages and disadvantages that are associated with this work in mind. They should try to develop such policies that will help in all round development of the company and the related parties that will include the shareholders, the investors, the employees, consumer etc. This should be the aim of the managing director, who is forming the policies for the company (Belton 2017).
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