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There are many differentiating factors when it comes to companies: big and small, old and new, foreign and domestic.

But a major characteristic for any company concerns the nature of its ownership. All companies have shareholders, but the structure and availability of those shares determines whether or not that company is public or private.

The difference may seem obvious: public companies trade their shares on a public exchange (like the New York Stock Exchange), while private companies do not. But the choice to be public or private is enormously consequential, with pros and cons to each.

From private to public

Most companies begin life as a startup with a small pool of shareholders that contribute private capital to the business (from personal savings, friends and family, bank loans).

That may evolve into more institutional investments from private equity, angel investors, or venture capitalists, who also earn stakes in the business.

But at some point, a company may want to tap an even larger pool of capital: the public markets. Investment banks helping companies go public will draw in new investors with the goal of then placing shares on an exchange for the investing public to freely trade.

Companies can go public via several routes. An initial public offering, a direct listing, or a special purpose acquisition company (SPAC) are among the many options.

Note that if a company is public, that does not mean all (or even a majority) of its shares have to be listed on an exchange.

How does going public affect a company?

Naturally, public companies will have a larger number of shareholders. Depending on the voting structure of an entity’s shares, that could also have implications for company control.

Being public also comes with live quoted stock prices, which management can use to assess when shareholders like (or don’t like) things happening with the company.

Some companies may not want that kind of millisecond-to-millisecond noise.

Public companies also face additional regulatory requirements (i.e. disclosures) from the U.S. Securities and Exchange Commission.

But the primary benefit of being a public company is the ease by which it can raise more capital. Need another round of fundraising? Issue more shares and let the public snatch them up.

Can companies go from public to private?

Yes! There may be times when a company no longer wants to be publicly listed, in which case it can pursue a few different routes to go private — most of which involve finding a private buyer to purchase a large amount of the publicly-listed shares.

One common way is for a private equity firm to take on that responsibility. The firm will raise the money needed to do a “buyout” of the shares, and then register with the SEC to delist the company from the public exchanges. If a firm is required to take out a large amount of debt to finance the buyout, the transaction becomes a “leveraged buyout,” or LBO.

Sometimes, the move to go private can be hostile. An outside entity can “target” a public company and force it into privatization by taking over its public shares.

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