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| *Ostroff, Fair and Company>>>Corporations |
What's the difference between a company going public or staying private? |
What's the difference between a company going public or staying private? Well, there are actually three flavors not just two. Private is pretty obviously when all the shares are in the hands of private and "qualified" investors. Public is on one of the securities exchanges where even "widows and orphans" can buy the shares. Here both the exchange and the company come under the fine grained regulatory glare of the Securities and Exchange Commission. The third way is called Rule 144 sales. This market is organized and growing and the NASDAQ market will soon provide exchange like services to it. Under Rule 144 no investor without $100 million to invest can participate and because these are professional investors the SEC uses a very light hand. On the company side there is a limit of 500 investors as well. going public means we can all buy shares in it Going public means the shares are going to be sold on a stock exchange, ie public ownership. Staying private means not trading shares on a stock exchange and the ownership remaining in the hands of private investors. bvoyant did a pretty good job of summarizing, except for 2 errors: 1) you don't need to be "qualified" to own shares in a private company. If you did, there would be no such thing as founders shares, family & friend rounds, or for that matter, most entrepreneurial small business ventures. You're confusing 'private' with Rule 144A. 2) it's Rule 144A and the 144A market. Rule 144 is a safe harbor for resales of restricted securities under Section 4(1) of the Securities Act of 1933 -- it helps define what an "underwriter" is not. Rule 144 is most often used for founders shares and private placements. Rule 144 stock can be traded, but there are significant restrictions. What bvoyant is referring to with the $100 million is the definition of a "qualified investor" under Rule 144A. PS to bvoyant -- there was an in-house op-ed piece in the Journal today (4-26) on the 144A market, pretty good piece. The answers before this one do a fair job of describing many of the differences, but all of them left out a critical one. In the U.S., all public companies fall under the rules set forth by the Sarbanes-Oxley Act of 2002 (SOX). These are currently very costly standards, and any decision to go public should include a complete analysis of the price (both dollar amounts and human resource amounts) of implementing SOX. |
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