What is Staying Private?

Raising public capital is necessary for many companies. Many sectors have accessed the public market for it to sponsor their daily operations and grow their businesses. By selling stock or portion of ownership in a public offering, companies which go public get an instant influx of capital. 

While some companies may be comfortable with it, other companies understand the fact that public ownership does not come easy, meaning that it comes at a price. By choosing or deciding to remain private, they wont have to answer to a large group of shareholders. In addition, they will be able to keep their finances, as well as, business plans private.

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Why Would a Company Stay Private?

Private company founders generally have increased autonomy, such as:  

• control over the pay of senior executives,
• determine who can invest in the company,
• select the technique and direction.

    On the other hand private companies may have the following issues:  

• attracting top talent (because of the higher pay and stock options public companies can provide)
• Limited liquidity for shareholders.

    While going public implies the potential for generating enormous cash, it may also lead to increased scrutiny from shareholders and regulators (such as the Securities and Exchange Commission). It is mandatory for a public traded company to give up some control so as to have access to a huge sum of capital it may not have had access to when it operated as a private company. 

Companies do not have to go public to raise capital. There are tons of compelling reasons why companies choose to go public. Having access to huge amounts of capital is one of the major reasons. However, the disadvantage associated with the increased capital includes increased scrutiny by shareholders and the SEC. This drawback can outweigh the benefits. 

It is important to know that private companies can remain free while turning to other sources of capital. Both stock and traditional lending institutions are efficient ways of raising enough capital that is needed. It is good to be aware of the fact that going public is not the right decision at all times.

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