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. Why would a corporation issue convertible bonds?

    Discover how corporations issue convertible bonds to take advantage of much lower interest rates as a result of a conversion ...
  2. What kind of assets can be traded on a secondary market?

    Learn about the difference between the primary market and the secondary market, and what types of assets are traded on secondary ...
  3. Why would a company decide to utilize H-shares over A-shares in its IPO?

    Understand the difference between H shares and A shares. Learn why a company would decide to utilize H-shares over A-shares ...
  4. How do I place a buy limit order if I want to buy a stock during an initial public ...

    Learn how to place a buy limit order to buy a stock during an IPO. IPOs can be full of risks, and buy limit orders are one ...
RELATED TERMS
  1. Market Value

    The price an asset would fetch in the marketplace. Market value ...
  2. Bulldog Market

    A nickname for the foreign bond market of the United Kingdom. ...
  3. Float Shrink

    A reduction in the number of a publicly traded company’s shares ...
  4. Capital Strike

    A refusal of businesses to invest in a particular sector of the ...
  5. Gray Market

    An unofficial market where securities are traded. Gray (or “grey”) ...
  6. Floating Stock

    The number of shares available for trading of a particular stock.

You May Also Like

Related Articles
  1. Stock Analysis

    10 Developments By Gilead Sciences That ...

  2. Stock Analysis

    GrubHub (GRUB): Will it Deliver?

  3. Trading Strategies

    IPO Flippers And The Companies Who Hate ...

  4. Stock Analysis

    Will Jet.com Revolutionize Shopping?

  5. Stock Analysis

    3 Things You Should Know About PayPal's ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!