Public vs. Private Companies

A publicly traded company is a corporation
whose ownership is dispersed among the general public through shares of stock which are traded
on a stock exchange. A private company, however, is owned by a
relatively small number of shareholders, typically the company’s founders, management, or a group
of private investors, like venture capital firms. Shares aren’t available to the general public
and aren’t traded on public exchanges. One major difference between public and private
companies is how much financial information they’re required to disclose. Public companies must register with the Securities
and Exchange Commission, or S-E-C, file quarterly earnings reports, and provide other important
information to shareholders and the public. These regulations are intended to protect
the public and help them make informed investing decisions. In contrast, private companies aren’t required
to disclose their financial information. Until a private company exceeds a certain
number of shareholders, it doesn’t have to register with the S-E-C. As a result, company leadership has more control
and is less beholden to shareholders. An initial public offering, or I-P-O is often
the way private companies choose to become publicly traded. In exchange for cash, companies issue shares
of stock to the public. However, a public company can decide to transform
itself back into a private company if their needs change. This may involve a private equity firm buying
a major portion of outstanding shares and requesting the S-E-C to delist the company
from the exchange. Take Dell Computers for example, whose buyout
was completed in October 2013. The company’s CEO, Michael Dell, and Silver
Lake Partners took the company private for $24.4 billion. A public company may go private for many reasons,
including: to limit the number of investors, create financial gain for shareholders, or
reduce regulatory and reporting requirements. Because they must report results every quarter,
some CEOs feel they’re required to focus on short-term results rather than long-term
priorities. Although privatization has benefits, it also
has risks. The new private owners may set strict business
objectives with tight timelines for company management, employees may face layoffs, and
possibly the most important, a private company can no longer leverage the public capital
markets and therefore must rely on private funding for future growth.

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