If I remember correctly, Beta 3.4 gave privateers the same ranks as naval officers. This was a bit silly because the top naval rank is literally the head of that nation's navy, and after one game I was therefore simultaneously head of the English, Dutch and Portuguese navies. Beta 4.1 gives privateers the same ranks as naval officers up to Captain, and after that you get noble titles instead.
Privateer: can have one or multiple Letters of Marque (LoM's). If you capture an enemy ship which is better than your current ship, you can keep the captured ship for yourself. If you accumulate too much money, the crew want their share of it and you must switch to paying by division of plunder to avoid a mutiny.
Navy: serves his own nation exclusively. You must remain in command of the ship assigned to you by the navy; even if you are lucky enough to capture something much better, you can't take it for yourself, you can only sell it for the prize money. But naval discipline prevails and you never need to switch to paying by dividing plunder. When you earn a promotion, you get a new, bigger ship for free, to go with your higher rank.