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May
21, 2004 -- Today,
many private companies are faced with a decision whether to
remain private or “go public.”
Likewise, many public companies are faced with a
decision whether to remain public or “go private.”
There are advantages and disadvantages both to being
a privately-owned company and to being a publicly-owned
company.
The main advantage often cited to being a public company is
having access to financial markets to raise capital.
Public companies have the ability to raise capital
through the offering for sale of both debt and equity
instruments to a broad and attentive audience.
Also, the cost of capital for a public company is
often considerably less than the cost of capital for a
private company.
The
disadvantages of being a public company include mandatory
compliance with the Sarbanes-Oxley Act of 2002, strict (and
becoming stricter) financial reporting rules, and the
overall cost of being a public company.
Recent estimates of the costs of being public
indicate that such costs have increased for most public
companies up to 200% over the past 18 months.
The
main advantage often cited to being a private company is
that you are the “captain of your own destiny.”
Without a broad group of shareholders which it is
reportable to, management is better able to direct corporate
strategies in directions which may be costly in the short
run, but in the best interests of the company (and its
owners) in the long run.
Disadvantages
to being a private company include having to raise capital
from private sources, the cost of such capital, and the
inability to offer meaningful non-cash compensation (such as
stock options) to key members of management, which may
require a company to pay more cash compensation in order to
keep its key
managers.
In
deciding whether to be a public or private company, owners
and management should carefully access the strategic goals
for the company and make decisions based on the best path to
achieving such goals.
For
more information and sound advice on public and private
companies, call Joe Beach at
215-564-1900
.
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