Loading the player...
A:

Privately-held companies are - no surprise here - privately held. This means that, in most cases, the company is owned by the company's founders, management or a group of private investors. A public company, on the other hand, is a company that has sold a portion of itself to the public via an initial public offering of some of its stock, meaning shareholders have claim to part of the company's assets and profits.

One of the biggest differences between the two types of companies deals with public disclosure. If it's a public U.S. company, which means it is trading on a U.S. stock exchange, it is typically required to file quarterly earnings reports (among other things) with the Securities and Exchange Commission (SEC). This information is also made available to shareholders and the public. Private companies, however, are not required to disclose their financial information to anyone since they do not trade stock on a stock exchange.

The main advantage public companies have is their ability to tap the financial markets by selling stock (equity) or bonds (debt) to raise capital (i.e. cash) for expansion and projects. The main advantage to private companies is that management doesn't have to answer to stockholders and isn't required to file disclosure statements with the SEC. However, a private company can't dip into the public capital markets and must therefore turn to private funding, which can boost the cost of capital and may limit expansion. It has been said often that private companies seek to minimize the tax bite, while public companies seek to increase profits for shareholders.

The popular misconception is that privately-held companies are small and of little interest. In fact, there are many big-name companies that are also privately held - check out the Forbes.com list of the largest private companies in 2006.

(For further reading on this subject, check out Policing The Securities Market: An Overview Of The SEC.)

RELATED FAQS
  1. What are some of the key reasons a large corporation might prefer to remain a private ...

    Understand the reasons why a large corporation would want to remain as private instead of going public through an initial ... Read Answer >>
  2. How does the privatization of a publicly traded company work?

    Find out how a publicly traded company can privatize and remove itself from listed stock exchanges and out from under the ... Read Answer >>
  3. How can I sell private company stock?

    In some instances, both private and public companies may issue shares to their own employees as part of a compensation program. ... Read Answer >>
  4. What are the advantages and disadvantages for a company going public?

    An initial public offering (IPO) is the first sale of stock by a company. Small companies looking to further the growth of ... Read Answer >>
Related Articles
  1. Small Business

    How To Invest In Private Companies

    Owning a private firm means sharing more directly in the underlying firm’s profits.
  2. Insights

    Why Are Companies Taking Longer To Go Public?

    Learn why private companies are waiting longer to have their IPOs. Understand why it may be more advantageous for a company to stay private.
  3. Investing

    Using Public SEC Filings To Analyze Companies

    Reports from the Securities and Exchange Commission provide investors with an edge in determining the investment value of companies. Learn what to look for in these financial reports.
  4. Small Business

    Public Vs. Private Tech Valuations: What's Driving the Divide?

    The gross valuations over the past five years are more indicative of the market than the true value of the company itself.
  5. Insurance

    The Ups And Downs Of Initial Public Offerings

    Initial public offerings aren't the best option for every company. Consider these factors before "going public."
  6. Investing

    Why Do Companies Care About Their Stock Prices?

    Read on to learn more about the nature of stocks and the true meaning of ownership.
  7. Investing

    Explaining Privatization

    For a publicly traded company, privatization is the act of transitioning the company to ownership by private individuals.
  8. Investing

    The Pros And Cons Of A Company Going Public

    Small companies looking for growth often use an initial public offering to raise capital. But going public brings both advantages and disadvantages.
  9. Financial Advisor

    Should My Portfolio Include Private Equity?

    Private equity offers a lot of potential, but is it worth the risk?
RELATED TERMS
  1. Private Company

    A company whose ownership is private. As a result, it does not ...
  2. Public Company

    A company that has issued securities through an initial public ...
  3. Going Private

    A transaction or a series of transactions that convert a publicly ...
  4. Going Public

    The process of selling shares that were formerly privately held ...
  5. Primary Offering

    The first of issuance of stock for public sale from a private ...
  6. Private Purchase

    A situation in which an investor (either individual or institutional) ...
Hot Definitions
  1. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  2. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  3. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  4. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
  5. Majority Shareholder

    A person or entity that owns more than 50% of a company's outstanding shares. The majority shareholder is often the founder ...
  6. Competitive Advantage

    An advantage that a firm has over its competitors, allowing it to generate greater sales or margins and/or retain more customers ...
Trading Center