Public Company vs Private Company

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.

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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 –

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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.read more 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 directorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. read more, 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 firmPrivate Equity FirmPrivate equity firms are investment managers who invest in many corporations' private equities using various strategies such as leveraged buyouts, growth capital, and venture capital. The top private equity firms include Apollo Global Management LLC, Blackstone Group LP, Carlyle Group, and KKR & Company LP.read more.

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 companyPublic CompanyPrivate Company
1.    DefinitionA 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 onThe 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.read more.The stocks of a private company are owned and traded by only a few private investors.
3.    RegulationsA 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.    AdvantageThe 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 stockholdersStockholdersA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares.read more & there’s no need for disclosures as well.
5.    SizePublicly traded companies are big companies.Privately traded companies can also be big companies. The idea that a privately held companyA Privately Held CompanyA privately held company refers to the separate legal entity registered with SEC having a limited number of outstanding share capital and shareowners. read more is smaller is utterly false.
6.    Source of fundsFor 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 (IPOIPOAn initial public offering (IPO) occurs when a private company makes its shares available to the general public for the first time. IPO is a means of raising capital for companies by allowing them to trade their shares on the stock exchange.read more) 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.read more in the company and request the SEC to delist the company from the stock exchange.

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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 –

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Comments

  1. Anushree says

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  2. Ratikanta sahoo says

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