A private company their shared are privately held and they do not trade them to any over business. The private business can be anything from being a partnership, a corporation, a sole proprietorship or a limited liability company. The difference between private and public companies is that the public companies must follow a strict government regulations whereas the private companies are legally required to file certain documents with their state and must follow the compliance law for shareholders.
Also, public companies are required by the Securities and Exchange Commission to file an annual report documenting their performance in detail while the private companies are required to publicly disclose financial information.
Private companies can focus on their term growth instead of making sure that the shareholders are getting their quarterly dividends as they don’t have to disclose any financial information.
Private companies don’t need the approval of the shareholders as they will make their own decisions on operational and growth strategy, as long as that it is stated in their corporate documents.
With public companies, if you want to make decisions, make company’s operations, management actions or financial performance then you must inform shareholders for approval for them. There will be unlimited liability for a company’s owners if going public and going public is expensive.
Public companies may have an easier time raising large amounts of capital by selling securities. Because public companies are at less risk and have more potential to reap large rewards, investors are more likely to invest in. Public companies can return to the stock market and raise more capital via a secondary stock offering or by issuing a bond.
Public companies must comply with the rules established by the Sarbanes-Oxley Act. This act contains a myriad of regulations concerning board responsibilities and requires the securities and exchange commission to administer rules that comply with the law.
With public companies if the owners buy back the shares from the shareholders then they can become a private company even if they are members of another company, a small group of investors or any members of the public.
