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Distinction between Private and Public Company

Cite this article as: Jason Mance Gordon, "Distinction between Private and Public Company," in The Business Professor, updated January 13, 2015, last accessed April 10, 2020, https://thebusinessprofessor.com/knowledge-base/distinction-between-private-and-public-company/.
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Public Company vs Private Company
This video explains what is a public company and what is a private company.

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What is the distinction between a “private company” and “public company”?

A private company is a business whose ownership interest is not openly held or traded by the public at large. Company ownership is not sold in the public market. As such, all ownership interests are acquired via personal transactions with the company or other owners of the company. A public company, on the other hand, is a business whose ownership is openly traded in the market. Often, the ownership interest will be traded on a public “stock exchange”. If the shares are not listed on an exchange, the shares are generally available for purchase through securities brokers in what is known as “over-the-counter” transactions. Public companies are subject to far more extensive regulation than private companies. This reality often leads public companies to repurchase outstanding shares from the public market in a transaction known as “going private”.

  • Note: Most public companies are corporations. There are, however, limited instances where shares of ownership in other types of entities are sold publicly. An example would be master limited partnership interests.

Discussion: Why do you think that public and private companies are subject to different levels of regulation?

Practice Question: Stock of ABC Corp is traded on a public exchange. Milly makes a tender offer to shareholders and acquires all of the outstanding shares of ABC. At this point, is ABC Corp a public or privately held company?

Proposed Answer

  • A public company, also referred to as publicly-held company, is a corporation that issues shares of stock. The shares are made available to the public and interested persons can engage the sale of the shares publicly on open market through stock exchange. A private company on the other hand is a stock corporation whose shares of stock are not publicly traded on the open market. However, the shares are held internally by a few individuals-closely held. The fact that one individual acquires all the shares that were on open market does not automatically make the public company a private company. To become a private company, the company must de-list its shares from public sale and withdraw registration with the Securities and Exchange Commission.

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