Private Company vs. Public Company: Key Differences
One-sentence takeaway: Private companies are like exclusive clubs, while public companies are open to everyone on the stock market.
The main difference between private and public companies boils down to how their shares are owned and traded. This impacts everything from fundraising to regulations and how much information they have to share. Here’s a breakdown:
Ownership & Trading:
- Private: Shares are held by a smaller group (founders, employees, early investors). Trading shares is much harder and often requires company approval. Think of it like trying to sell a rare collectible—you need to find the right buyer and the owner might have a say.
- Public: Shares are traded openly on stock exchanges (like the Nasdaq or NYSE). Anyone can buy or sell them, creating a much more liquid market. Think of it like buying and selling groceries—easy in, easy out.
Fundraising:
- Private: Raise money through private investors (e.g., angel investors, venture capitalists). Funding rounds are less frequent but can be substantial.
- Public: Primarily raise money through selling shares on the public market (IPOs and follow-on offerings). This allows them to access a much larger pool of capital.
Regulations & Reporting:
- Private: Face fewer regulations and reporting requirements. They don’t have to share financial information with the public. This privacy can be a valuable asset.
- Public: Heavily regulated and required to regularly disclose financial information. This transparency allows investors to make informed decisions.
Valuation:
- Private: Valuations are less frequent and often based on private fundraising rounds. Estimating the value of your shares can feel like guesswork sometimes, though tools like Earlyasset’s Portfolio Tracker can help.
- Public: Valuations fluctuate constantly based on market forces (supply and demand). You can always look up the current share price.
Liquidity:
- Private: Shares are less liquid, meaning it can be challenging to sell them quickly. Earlyasset exists to help with this illiquidity.
- Public: Shares are highly liquid, meaning they are usually easily bought or sold on the stock exchange.
So here’s what we covered:
- Ownership and trading of shares
- Fundraising methods
- Regulatory and reporting requirements
- Valuation differences
- Liquidity of shares