Public versus private equity

Public equity refers to the common stock of companies whose shares, by virtue of being listed on one of the major stock exchanges, can be freely traded and sold to the public at large. By comparison, the shares of common stock of companies that are privately held, are not traded on any established exchange, and as such, are neither freely transferable nor available for sale to the public.

Companies whose stock is publicly traded, must comply with both the periodic reporting and listing requirements of the exchange on which their shares are listed, as well as the pertinent regulations as promulgated by the Securities and Exchange Commission (SEC). Companies, whose underlying stock is privately held, are generally free from these onerous reporting and disclosure requirements.

Since a liquid and established market for its shares exists, stock of publicly traded corporations can be sold easily and quickly. The seller simply notifies a stockbroker, who then sells the shares on the appropriate exchange for the market price at the time of sale.

Thus, one of the benefits of owning public, as opposed to private shares, is that the value of the stock can be readily ascertained at any given time, simply by looking at its listed daily share price at the exchange where it is traded.

In order to insure that control of the company remains with the founders, or other small group of individuals, stock transfer restrictions are frequently imposed on those who are issued shares in a privately held corporation. These agreements limit a shareholder’s ability to sell their stock to outside third parties.

Additionally, since there is no public market for its shares, assessing the value, or price, of the stock of a privately held corporation at any given time, for purposes of a sale, can pose unique appraisal challenges.