A privately held company does not offer its shares for sale to the general public, whereas a publicly held company can sell shares to the public, normally through a stock exchange. Both are incorporated businesses whose shareholders usually benefit from limited liability.
This is IB Business Management subtopic 1.2 Types of business entities, studied at both SL and HL.
The Main Differences
A privately held company is owned by a relatively small group, such as its founders, family members, employees, or private investors. Because its shares are not publicly traded, existing owners can usually retain greater control over who becomes a shareholder.
A publicly held company can raise finance by issuing shares to a much wider pool of investors. However, ownership may become dispersed, creating a greater separation of ownership and control between shareholders and the directors who manage the company.
| Factor | Privately held company | Publicly held company |
|---|---|---|
| Share ownership | Shares are held privately and are not offered to the general public | Shares can be bought by members of the public |
| Access to finance | More limited because shares cannot be sold publicly | Greater potential to raise substantial share capital |
| Control | Founders or existing owners can retain closer control | Control may be diluted as more shares are issued |
| Disclosure | Usually faces fewer public reporting requirements | Faces stricter disclosure and regulatory requirements |
| Risk | Raising finance may be difficult | May face shareholder pressure and takeover risk |
A common misconception is that a publicly held company belongs to the government. This is incorrect: publicly held describes how shares are owned, while the public sector consists of organizations owned or controlled by the state.
Exam Technique
For a compare and contrast question, identify the similarity that both are companies with shareholders and limited liability, then explain differences using paired comparisons. Avoid producing two separate lists: refer to both business entities throughout and apply the differences to the case-study organization before reaching a contextual judgment.