Chapter 17: Problem 17

What is the difference between a private company and a public company?

Short Answer

Expert verified

The main differences between private and public companies are as follows: 1. Ownership: Private companies have a limited number of shareholders, while public companies have a vast and diverse shareholder base. 2. Shares trading: Private company shares are not traded publicly and are not easily transferable, whereas public company shares are openly traded on stock exchanges. 3. Regulatory requirements: Private companies have fewer disclosure and reporting requirements, while public companies must follow stringent regulations and disclosures. 4. Financial transparency: Private companies are not required to disclose extensive financial information, while public companies must regularly disclose financial information to comply with regulations and maintain investor trust.

Step by step solution

1. Define Private Company

A private company is a business owned by private individuals or entities, and its shares are not traded publicly. The ownership is typically restricted to a limited number of shareholders who can buy and sell shares privately. Private companies are not required to disclose extensive financial information or follow certain regulations imposed on public companies.

2. Define Public Company

A public company is a business whose shares are traded publicly on a stock exchange. Anyone can buy and sell shares of a public company as long as they have access to a trading platform. Public companies are subject to extensive regulations, financial disclosures, and periodic audits to ensure they maintain transparency and corporate governance standards.

3. Compare Ownership

Private companies are owned by a limited number of shareholders, typically including the founders, management, and private investors. Public companies are owned by a large number of public shareholders who can buy and sell shares on a stock exchange. Public companies have a more diverse and vast shareholder base compared to private companies.

4. Compare Shares Trading

Shares of private companies are not traded on public exchanges and are not easily transferable. Trading of private company shares is often executed through private agreements between parties. In contrast, shares of public companies are traded openly on stock exchanges and can be easily bought and sold by any investor with access to a trading platform.

5. Compare Regulatory Requirements

Private companies are not subjected to the same level of regulatory oversight as public companies. They have fewer disclosure and reporting requirements, which often results in lower compliance costs and administrative burden. Public companies must follow stringent regulations, including financial reporting, disclosure, and corporate governance rules mandated by securities regulators.

6. Compare Financial Transparency

Private companies are not required to disclose their financial statements, profits, or other financial information to the public. This allows them to operate with more discretion and privacy. Public companies must regularly disclose extensive financial information, including financial statements and performance metrics, to comply with regulations and maintain investor trust. In conclusion, the main differences between private companies and public companies lie in their ownership structure, shares trading, regulatory requirements, and financial transparency.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!