Public Company: Public Vs. Private Company

Public vs. Private Company

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

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 and a Private Company

There’re many differences between a public company and a private

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