Public Company vs. Private Company - What's the Difference?
What's the Difference Between a Public Company and a Private Company?
The terms "public company" and "private company" can be confusing. To simplify:
A public company (sometimes called a publicly held company) is usually a corporation that issues shares of stock (a stock corporation). In a public company, the shares are made available to the public. The shares are traded on the open market through a stock exchange.
A private company is a stock corporation whose shares of stock are not publicly traded on the open market, but are held internally by a few individuals.
A closely held company is usually a private company; in a closely held company, the shares are held by only a few individuals and are not available to the general public.
How a Private Company Becomes a Public Company
Many companies begin as private companies. The business starts small, often as a family business, and the family members and a few trusted advisors form the board of directors and the shareholders. Some very large corporations have remained private. Cargill (the food producer) is the largest private company in the U.S. Some other familiar examples of privately held companies are:
- Mars Inc. (the candy company; think Mars Bars)
- State Farm (and various other insurance companies)
- Dell (computers)
- Publix Supermarkets (in the Southeast)
Over time, as companies grow, they require more money to expand markets; develop, produce, and sell new products, hire more employees, and add to their capital structures with new buildings. This expansion usually requires new investments, so the company "goes public."
Going public involves a complicated process of offering stock for sale to the general public, thus creating a public company.