The Advantages of Being a Private Company

by Crystal Vogt

When starting a business, you'll likely need to choose whether you want it to be a publicly traded company or a private company. While neither choice is better or worse than the other, you will need to assess what kind of freedom you want with your company along with other elements. For example, one advantage to going public is having increased access to funding sources. Remaining a private company, though, has its own advantages.

Financial Results

Unlike a publicly traded company that allows stockholders to invest in shares and is required to report financial results every quarter, a private company is not obligated to reveal financial results at any time to the public, thus eliminating short-term pressures of meeting shareholder and analyst expectations. Also, eliminating the need to disclose information can be advantageous in terms of divulging business details that might put you at a competitive disadvantage.

Long-Term Planning

Private companies do not have to plan for the short term as much as publicly traded companies do to satisfy shareholders and keep daily stock prices up. Eliminating this need to produce stellar quarterly results allows a private company to focus on long-term growth and manage accordingly. While businesses can still assess short-term goals, they can spend more time and research looking at ongoing, long-term objectives "without having to become obsessed with quarterly results," Bechtel spokesman John Marshall told the San Francisco Chronicle.

Corporate Governance

The Securities Exchange Act, along with separate securities market regulations, requires that certain rules be followed when it comes to corporate governance within a publicly traded company, such as how a business is structured. One advantage of being private is that a company does not need to adhere to these stipulations, and can have more flexibility and freedom when it comes to how its governance is structured.

Limited Liability

"The most important advantage" of being a private company is limited liability exposure, according to education resource Tutor2U. This type of limited liability refers to the liability for directors and officers of the company to only lose up to the amount that they invested in the company. Limited liability protects the personal wealth of a private company's shareholders, and does not put personal assets at risk.

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