Difference between Privately Owned Business and Publicly Owned Business
When the subject of privately-owned businesses and publicly-owned businesses comes up, many people automatically assume that one is better than the other based on a few factors. The fact of the matter is that each of these types of business ownership comes with its own unique set of advantages and disadvantages and the decision to go with one in preference to the other should be made taking specific needs and circumstances into consideration. Your decision to go with one or the other can have a significant effect on your businesses future, so a look into their strengths and drawbacks is worthwhile.
Ownership
A privately-owned business is, as you may have guessed, owned by a private individual or a group of private individuals. In most cases, the owners of the company in question are the same people who founded the company or those who manage it. Some privately-owned businesses are owned by a group of investors.
Publicly-owned businesses are so named because part of the company is actually in the ownership of the public. This is the result of a sale of its stock, essentially allowing buyers to claim a portion of the assets and profits of the company in question.
Disclosure
The main difference between publicly-owned businesses and privately-owned businesses lies in public disclosure. A company that goes "public" is basically offering its shares for purchase on the stock market. Publicly-owned businesses will also have to report their earnings to the Securities and Exchange Commission four times a year. Privately-owned business on the other hand won't have to divulge their financial information to the SEC, since their stocks aren't traded on the stock exchange.
Advantages and Disadvantages
Publicly-owned businesses have a distinct advantage over privately-owned businesses in that they have a lot more opportunities to raise funds by selling off stock and/or bonds. This allows the business owners to implement expansion projects more easily.
As for a privately-owned business, the fact that the owners don’t have to disclose financial information is a definite advantage, although this is offset by the comparatively fewer options for financing. This can result in more costs and limited expansion options.
Summary
Privately owned
- Owned by private individuals, often the founder or manager, or a board of investors
- Are not required by law to publicize their financial information since their stocks aren't up for bids in the stock exchange
- Management is not answerable to stockholders
- Private funding as the main source of capital means higher rates and limited expansion options
Publicly-Owned Businesses
- Partly owned by the public as a result of sales of its stock
- Allows stockholders to claim part of the company's assets and profits
- Stocks are traded on the stock exchange
- Is required to file reports of its earnings every quarter
- May raise capital by selling stocks and/or bonds
