Public Trade and Private Business

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Public Trade and Private Business

The article Public Problem: Private Markets Grapple with Tech IPOs by Steven Russolillo examines the decision made by internet groups and companies to go public. Russolillo notes that investors and employees are taking advantage of investing in these companies before they go public. This is especially because major social media sites such as Facebook are interested in making their companies public. Some of theses companies are estimated to make a lot of money in revenue and many people are interested in becoming shareholders. This has in turn led to the increase in the value of the shares in these companies. It has also contributed to the surge in the private exchanges. The decision has also attracted companies in the public exchange, which have begun showing an interest in the companies. According to the article, some of the less known companies, which decide to go with the decision, will struggle to survive in the market. The author further notes that many investors are more likely to invest in the companies they know (Russolillo, 2011).

The Securities Exchange Commission proposed to increase the limit in the number of shareholders before they go public. The current law requires that companies, which have more than five hundred shareholders, register with the SEC before going public. The Commission proposed to increase the shareholder threshold to one thousand. Many small businesses, which have five hundred shareholders and assets with a worth of ten million dollars are expected to go public. Public companies are expected to reveal their financial statements but private companies with less than 499 employees do not have to reveal anything publicly or register with the Securities Exchange Commission. Private companies rely on the secondary markets, where the shareholders of different private companies buy and sell their shares. The secondary markets are not regulated by the securities exchange commission. The rules and regulations that govern the secondary markets are different from the ones applied in the public companies. For instance, companies are not expected to reveal their financial condition to the shareholders. The move is seen as a way of increasing the number of jobs available. The bill would encourage companies who have at least more than five hundred shareholders to become public companies (Pender, 2011).

Many small companies are opposed to the current regulation since it acts as an impediment to their development and growth. The proposed regulation would encourage growth in the companies, as it would increase its revenue. The regulation would make it easier for the companies to access capital. This would lead to the company’s development, as it will be able to come up with developmental ideas, which would not have been possible before the legislation. The decision affects tech companies as most of them are private and they use the secondary markets. The decision makes it possible for the companies to make their initial public offerings and attract many shareholders in the company. Companies aiming to go public have to go through tedious regulations. They have to provide the company’s business plan, business contracts, and all forms of cash and non-cash compensations made to the CEO, officers and directors of the company. This is in addition to the companies’ financial statements, summary of selected data and a description of the companies’ financial situation. Companies that have more than five hundred shareholders are expected to register with the securities exchange commission. They are also expected to give the commission a lot of financial data concerning the company. Many small companies find these processes cumbersome and time wasting, and to avoid this, they opt to make their companies public (Pender, 2011).

References

Pender, K. (2011). Facebook: Public-private trading distinction blurs. Retrieved from http://articles.sfgate.com/2011-01-04/business/26357944_1_public-companies-trading-public-private

Russolillo, S. (October 31, 2011). Public problem: Private markets grapple with tech IPOs. The Wall Street Journal. Retrieved from http://online.wsj.com/article/SB10001424052970203687504576655311056016704.html?mod=googlenews_wsj