Corporate Finance Tutorials
- Business Ownership
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- Public Company vs Private Company
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- Corporate Finance Careers
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- Corporate Finance vs Investment Banking
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- CEO vs President
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- Director vs Executive Director
- BPO vs KPO
- Insurance Agent vs Broker
- Twitter Profiles To Follow In Finance
- Wall Street Movies
Differences Between Public Company vs Private Company
Public company and private company both can be huge. It’s just the way they source funds are different.
- The public company takes the help of 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 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 means 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 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 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, the 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 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 exchanges.||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 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 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 (IPO) 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 shares in the company and request the SEC to delist the company from the stock exchange.
This has a 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 –
- Director vs Executive Director | Top Best Differences
- Top Differences Between Issued vs Outstanding Shares
- Industry and Sector Differences
- How to get into a Venture Capital?
- Private Equity Services Provided in India
- Angel Investment vs VC
- Private vs Public Sector Banks
- Private Equity vs VCs
- Bonds vs Debentures
- Economies of Scale vs Economies of Scope