April 3, 2007
Ever wonder what the difference is between a private and public company? A private company is one that's privately owned -- usually by one or a few people. Its owners don't have to reveal much about their business, and most of us investors can't invest in it.
A public company is one that has sold a portion of itself to the public via an initial public offering (IPO) of some shares of its stock. Therefore, it probably has hundreds or thousands of co-owners. If it's an American company trading on American stock exchanges, it's required, among other things, to file quarterly earnings reports with the Securities and Exchange Commission (SEC). These are also made available to shareholders and the public. A public company can't keep mum about how much it made in sales last year. It must report information like that -- its revenues, cost of sales, tax expenses, administration costs, debt load, cash level, and so on.
Many major companies are private. From sandwich franchiser Subway to candy maker M&M Mars, from Fidelity Investments parent FMR Corp. to Hallmark Cards, you'll find large private companies in nearly every industry. With the recent upsurge in private equity activity, you're seeing more companies going private every day. Some private companies offer shares to employees, but individual investors are out of luck.
Just because an old, established firm is private doesn't mean it'll always be private. Investors looking to cash in often take firms public through initial public offerings. Recent IPOs of major companies include MasterCard (NYSE: MA ) and Burger King (NYSE: BKC ) . Levi Strauss, once private, went public only to go private again.
For most investors, if you'd like to make money in stocks, you'll need to stick to public companies. Each month, the Fool's stock newsletters pick promising companies that are open to all investors. For a sample, take a free 30-day spin with no obligation.
Longtime Fool contributor Selena Maranjian does not own shares of any companies mentioned in this article. The Fool has a disclosure policy.