In a country, the business is controlled by two sectors which are the public sector and the private sector meaning of privatisation . The public sector refers to the part of the business that is owned by the government while the private sector is a business owned by other individuals and companies.
What is Privatisation
The meaning of privatisation is the process of converting business from the public sector to the private sector. It occurs when a government-owned business or organization decides to transfer ownership to some individuals or companies. Privatization brings about more objectivity and improves the efficiency of the company.
After the process of privatization is complete, the stock of the company is no longer trading its stock on the stock market, and the public is restricted from holding a stake in the company. The company is addressed as private limited after the ownership has been transferred.
Ways to Convert to Privatisation
There are two ways in which a public company can be transferred to the private sector. These are:
- Disinvestment: This is a process by which a portion of shares of the publicly held organization is put up for sale.
- Transfer of Ownership: This is a process in which the government withdraws its right over public sector companies or by selling off the company.
Forms of Privatisation
The following forms of privatization can be seen:
- Denationalization: This refers to the complete transfer of ownership from the government to private companies. The government does not retain any share of the organization.
- Joint Venture: In this form, the government allows around 50% or more of the share to be purchased by private companies. Private sector companies yield significant power in such a setup.
- Co-operative of Workers: In such a company, the ownership is handed over to workers union with the objective of lifting the productivity of the company. This type of privatization is mostly seen for loss-making entities.
- Token Privatisation: In this type of privatization, the profit-making government companies sell about 5-10% of their shares in order to raise revenue for reducing the budget deficit.
Objectives of Privatisation
The following are the objectives of privatization:
- To bring about an improvement in the operating efficiency of the business
- To create a global presence for the company
- To generate foreign investment opportunity
- For modernizing equipment and infrastructure
- To create an environment for rapid industrialization
- To generate revenue from non-profit making organization
- Getting rid of loss-making industries for strengthening the economy
- Improve the profitability of the business
- To generate more employment
- For operating public enterprises on a commercial basis for profit
For learning more about different business and accounting concepts such as balance sheet, financial statements, depreciation, stay tuned to BYJU’S.