The initial public offering (IPO) is often a rite of passage for large corporations. The lure of going public with an offering of equity shares in a business can be strong, as it presents opportunities for higher valuations and greater investment from the public.

While advantages are numerous when a company completes a successful IPO, there are unique benefits afforded to a company that makes the decision to remain private. A company may choose to keep its private status in lieu of going public for reasons including maintaining a long-term focus, sustained control over operations, non-disclosure rights and a lower expense burden.

Long-term Focus on Business Goals

One of the greatest caveats in transitioning to a public company is that it has a pressing need to meet the earnings expectations of shareholders every quarter. Management within a public company can get caught up with producing earnings reports every few months, which forces it to focus on short-term gains and, at times, fleeting shareholder satisfaction.

Keeping a corporation private does not require it to provide earnings reports each quarter, nor is it necessary to share revenue details with shareholders. Instead, private corporations can focus attention and effort on long-term business objectives and work toward reaching them without the pressure of short-term market gains.

Sustained Control over Operations

Within a privately held company, business operations remain under the control of the company's owner because shareholders hold no authority over the company. Corporations that go public end up sharing control with investors who want their voices heard. Some shareholders possess voting rights, which leaves the ability for changes within the business a persistent threat.

Drastic operational, personnel or financing changes cannot take place based on the whim of shareholders within a privately held company, and there is no potential for a hostile takeover when a company remains private.

Non-Disclosure Rights

Private companies are not subject to the same public scrutiny as are publicly traded companies. Because public companies' key business data including detailed financial statements and extensive reporting are required to be shared with the public and company shareholders, public companies face a great deal of pressure from regulatory bodies as well as current and potential investors.

However, a private company is allowed to keep financial data private and is not required to disclose major events or new developments to the public. This keeps private companies out from under the pressure of disclosure as long as they remain privately held.

Keeping Expenses Lower

While the financial benefit of going public can be exceptional for business owners, the cost to complete the process is enormous. In addition to the exorbitant expenses associated with an IPO, public corporations also have the burden of filing quarterly earnings reports and other required disclosure documents. Financial regulations imposed on corporations carry a heavy financial burden throughout the life cycle of the business and add a substantial amount to operating cost.

For corporations that choose to remain private, revenue can be used to invest back into the business or to compensate owners or management teams rather than being spent on regulatory or filing costs.

  1. What's the difference between publicly- and privately-held companies?

    Privately-held companies are owned by the company's founders, management, or private investors. Public companies are owned ... Read Answer >>
  2. What does "going public" mean?

    Going public refers to a private company's initial public offering (IPO), thus becoming a publicly traded and owned entity. 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 >>
Related Articles
  1. 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.
  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

    Valuing Private Companies

    You may be familiar with publicly-traded companies, but how much do you know about privately-held firms?
  4. 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."
  5. 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.
  6. Financial Advisor

    Should My Portfolio Include Private Equity?

    Private equity offers a lot of potential, but is it worth the risk?
  7. Investing

    IPOs Are Becoming Less Attractive for Companies

    U.S. companies are choosing to be acquired instead of going public
  8. 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.
  1. Public Company

    A public company issues securities through an initial public ...
  2. Forced Initial Public Offering - IPO

    An instance in which a company is forced into issuing shares ...
  3. Repackaging

    When a private equity firm takes a public firm private by purchasing ...
  4. Private Equity

    Private Equity is a non-publicly traded source of capital from ...
  5. Crossover Fund

    An investment fund that has investment holdings in both public ...
  6. Private Sector

    The part of the economy that is not state controlled, and is ...
Hot Definitions
  1. Consumer Price Index - CPI

    A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, ...
  2. Moving Average - MA

    A moving average (MA) is a widely used indicator in technical analysis that helps smooth out price action by filtering out ...
  3. Stop Order

    A stop order is an order to buy or sell a security when its price increases past a particular point in order to limit losses ...
  4. Inflation

    The rate at which the general level of prices for goods and services is rising and, consequently, the purchasing power of ...
  5. Candlestick

    A chart that displays the high, low, opening and closing prices for a security for a single day. The wide part of the candlestick ...
  6. Indicator

    Indicators are statistics used to measure current conditions as well as to forecast financial or economic trends.
Trading Center