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 all or a portion of itself to the public via an initial public offering (IPO), 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 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 of 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. 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 2016 which includes big name brands like Toys 'R' Us, Dell, Mars, Cargill, Koch Industries, and Bloomberg.

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

RELATED FAQS
  1. How does privatization affect a company's shareholders?

    The most recognized transition between the private and public markets is an initial public offering (IPO). Through an IPO, ... Read Answer >>
  2. 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 >>
  3. 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 >>
Related Articles
  1. Investing

    Advantages of Public Vs. Private Companies

    A privately held company is owned by its founder, management or a group of private investors.
  2. Small Business

    Why Companies Stay Private

    Many private companies prefer to stay private and find alternate sources of capital. Find out what firms have to gain by eschewing the windfall from a flashy IPO.
  3. Managing Wealth

    How To Invest In Private Companies

    It can be tough to analyze a company that doesn't trade publicly, but there are several advantages.
  4. Investing

    Valuing Private Companies

    You may be familiar with publicly-traded companies, but how much do you know about privately-held firms?
  5. Small Business

    What is a Private Company?

    A private company is any corporation that does not have shares publicly traded in the equity markets.
  6. Small Business

    How To Invest In Private Companies

    Owning a private firm means sharing more directly in the underlying firm’s profits.
  7. 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.
  8. 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.
  9. Investing

    Why Public Companies Go Private

    Privatization can give management more time to make money for investors, but at what cost?
RELATED TERMS
  1. Private Company

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

    1. The transfer of ownership of property or businesses from a ...
  3. Private Purchase

    A situation in which an investor (either individual or institutional) ...
  4. Private Equity

    Private Equity is equity capital that is not quoted on a public ...
  5. Going Public

    The process of selling shares that were formerly privately held ...
  6. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
Hot Definitions
  1. Tax Liability

    The total amount of tax that an entity is legally obligated to pay to an authority as the result of the occurrence of a taxable ...
  2. Preferred Stock

    A class of ownership in a corporation that has a higher claim on its assets and earnings than common stock. Preferred shares ...
  3. Net Profit Margin

    Net Margin is the ratio of net profits to revenues for a company or business segment - typically expressed as a percentage ...
  4. Gross Margin

    A company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. ...
  5. Current Ratio

    The current ratio is a liquidity ratio measuring a company's ability to pay short-term and long-term obligations, also known ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center