Phrases like ‘public’ and ‘private’ are commonly used amongst colleagues in the advertising sector. Both phrases suggest specific financial attributes. While some of these attributes become cross-reactionary and serve to optimize budgeting in both types of businesses, the lay public could care less about the man behind the curtain.
They should. Their wallets call the shots.
Ownership
More often than not, a privately owned company is owned by its founder or founders. Companies can also be owned jointly with private investors. Investors forward business owners monies in exchange for a share of the proceeds. Most are paid on a contingency basis. This finds business owners in a unique position to raise risk-free capital for the realization of their business initiatives.
Many consumers operate under the mistaken impression that all retail chains enjoy public ownership. In truth, a select few well known retail chains are privately owned. On a regional level, many investors will split the bill evenly with shopping mall owners. The mall owner may be offered a lump sum or a credit line for the purchase.
Publicly owned companies are owned in part by the consumer. This means that the parent company has auctioned off a portion of its assets to the public. In this respect, shareholders act as a cushion against loss. On the other side of the coin, shareholders may experience substantial gains within a very short period of time, gains that the company might have enjoyed were it not for having opened a portion of their total worth to the sway of public pockets. Such is the essence of investing.
In some cases, the CEO will share the floor with private investors as well as the public. Outsourcing risk to multiple investors (shareholders are investors too) can be as risky as sole proprietorship. Legally, all decisions made on behalf of a company must be unanimous. Many partial business owners find themselves in a tug-of-war with their colleagues during times of economic uncertainty. Private owners do not have that problem.
Pros and Cons of Each
One of the advantages to private ownership is that business owners can effectively bypass the disclosure laws applied to publicly owned companies in that they do not have to reveal their quarterly earnings to the Securities and Exchange Commission for the fact that they do not own or trade stock. This eliminates the risk of needing to expose low numbers to prospective shareholders. If you are the sole proprietor, you answer to your budget only.
One of the advantages of having a publicly owned company is the ability to sell off stock in exchange for capital. Much of which can be done through dedicated internet access. Retail chains often sell off stock to pay for expansions or the construction of new stores. Some of the costs associated with this include subcontractors, health insurance, Worker’s Compensation insurance, lodging, meals and commodities. Private owners do not have the luxury of selling off what isn’t there. Expansions come out of pocket or through a business credit line.
