The vast majority of companies we are familiar with are public owned. Firms with securities (equity and debt) owned and traded by the general public. The Coca-Cola Company, Apple, and McDonald’s are all examples of such public firms which shape the lives of millions of consumers.
Going public with a company brings many regulations and obligations, however, it also shapes into considerable advantages.
5 ways in which public companies have it better than privately owned companies:
1. A public company can quickly raise large amounts of capital for expansion by selling stock (equity) or bonds (debt).
As we have seen in recent years, capital fundraising rounds have the potential to raise hundreds of millions and even billions of dollars for the public company. On the other hand, private companies largely rely on private funding, limiting its ability to raise capital and reducing immediate growth potential.
2. The public company has more transparent finances.
Thanks to strict legal regulations, publicly owned companies have to regularly disclose certified financial reports that include profit statements and future forecasts. The advantage of this is quite clear: transparent finances give the company’s shareholders knowledge of the company’s financial health and can take the appropriate investment decisions. However, even public companies are known for cooking their books from time to time.
3. It is easier to transfer public company shares.
Because the shares of a public company is listed and traded on the stock markets, it is very easy for investors to buy, sell, or repurchase shares. In a private company however, shareholders are legally restricted from transferring shares freely to non-shareholders without consent of other shareholders. Shareholders can find themselves bound to the company since they cannot easily dispose of their shares even when they believe the company may lose money.
4. There is less risk for public company owners.
Shareholders in a private company have a high risk of personal loss because individual shareholders largely fund the assets of the firm. Therefore, both the private company and its owners are at risk should either one begin to suffer financially. In contrast, the public company and its owners are much better protected from loss, as bad performance by either party doesn’t directly impact the finances of the other.
5. The public company has transparent corporate governance standards.
The shareholders of the public company can exercise control over the management and can elect and remove directors. The management of the public company is therefore not confined to a few persons and can be considered a democratically mandated system. Legal standards for public companies also provide protection to minority shareholders and protect against oppression and mismanagement.
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