Differences Between Public Company vs Private Company
Public companies and private companies both can be huge. It’s just the way they source funds are different.
- The public company takes the help of the general public and loses out on the ownership, and they need to adhere to the regulations of SEC.
- The private company takes the help of private investors and Venture Capital. And they don’t need to disclose any company information to the general public.
Public Company vs Private Company Infographics
There are many differences between Public Company vs Private Company. Let’s have a look at them one by one –
What is a Public Company?
A public company can sell its own registered securities to the general public. After an IPO, a company becomes a public company. A public company can also be termed as a publicly-traded company.
Publicly traded company meansPublicly Traded Company MeansPublicly Traded Companies, also called Publicly Listed Companies, are the Companies which list their shares on the public stock exchange allowing the trading of shares to the common public. It means that anybody can sell or buy these companies’ shares from the open market. that the company can trade in public capital markets and can directly sell its shares to the public. As per the US Securities and Exchange Commission (SEC), if a company has $10 million in assets and over 500 subscribers, the company has to register with SEC and needs to follow all the reporting standards, rules, and regulations.
The shares of a public company are shared by the shareholders, board of directors, and management. A company becomes public to generate more capital for business via public and as a result, they can expand their reach and market.
What is a Private Company?
A private company isn’t like a public company. A private company can’t trade its shares among the general public. And the shares of private companies are not traded on public stock exchanges.
That doesn’t mean that private companies don’t have shares and there’s none who can own them. For private companies, the shares are owned and privately traded by a few willing investors. A private company is run in the same way a public company is run. The only difference is in the case of a private company, the number of shares traded is relatively smaller and also the traded shares are owned by limited individuals.
In the case of private companies, capital often is sourced from venture capitalists. Investing in private companies is perfect for VCs as they look for high-risk, high-reward investments. Private companies can go public if they feel they need more capital to expand the business. For that, they go for initial public offering (IPO) and issue shares to the general public.
A public company can also transform itself into a private company with the help of a private equity firm.
A Comparative Analysis of a Public Company vs Private Company
There’re many differences between a Public Company vs Private Company. Let’s have a look at the top differences between the two –
|Points of Differences between Public Company and Private company||Public Company||Private Company|
|1. Definition||A public company can sell its own registered shares to the general public.||A private company can sell its own, privately held shares to a few willing investors.|
|2. Traded on||The stocks of a public company are traded on stock exchangesTraded On Stock ExchangesStock exchange refers to a market that facilitates the buying and selling of listed securities such as public company stocks, exchange-traded funds, debt instruments, options, etc., as per the standard regulations and guidelines—for instance, NYSE and NASDAQ..||The stocks of a private company are owned and traded by only a few private investors.|
|3. Regulations||A public company has to adhere to a lot of regulations & reporting standards as per the SEC.||Until the private companies reach $10 million and more than 500 shareholders, it doesn’t have to follow any regulations issued by SEC.|
|4. Advantage||The primary advantage of a publicly-traded company is that it can tap into the market by selling more shares.||The primary advantage of a privately traded company is that it doesn’t need to answer to any stockholders & there’s no need for disclosures as well.|
|5. Size||Publicly traded companies are big companies.||Privately traded companies can also be big companies. The idea that a privately held company is smaller is utterly false.|
|6. Source of funds||For the publicly traded company, the source of funds is selling its shares and bonds.||For the privately traded company, the source of funds is few private investors or venture capitalists.|
Can a private company be a public company in the near future or vice versa?
The answer to both of these cases is a resounding yes. A private company can be a public company by conducting an initial public offering (IPOIPOInitial Public Offering (IPO) is when the shares of the private companies are listed for the first time in the stock exchange for public trading and investment. This allows a private company to raise the capital for different purposes.) and then they can issue shares to the general public.
On the other hand, a public company can transform itself into a private company. It can often happen that the public company wants to remain restricted by few investors only. To do this, they hire a PE firm and the PE firm buys a major portion of outstanding sharesOutstanding SharesOutstanding shares are the stocks available with the company's shareholders at a given point of time after excluding the shares that the entity had repurchased. It is shown as a part of the owner's equity in the liability side of the company's balance sheet. in the company and request the SEC to delist the company from the stock exchange.
This has been a guide to the top differences between Private Company vs Public Company. Here we also discuss the differences between the two with examples, infographics, and comparison table. You may also have a look at the following articles to learn more –