Disadvantages of Companies That Choose to Stay Private

There are several reasons why business owners decide to stay privately held.  One reason is that they enjoy the non-public nature of their business dealings. It is not that they are doing anything wrong; it is just that they are not thrilled with the idea of having to explain every little expense to the public.

The other reason that business owners choose to stay private is that they are hesitant to join the public market arena. They might not want to pay the costs involved, or they might not understand how it all works. They might worry about losing control of their business model. Most of them are not familiar with the Independent Stock Market, and how these and other hesitancies of going public are removed.

So, rather than learn about the safe, inexpensive, easy-to-understand ISM marketplace, they stay private and continue to work against all its disadvantages.

In this article, we will discuss two of the disadvantages of remaining privately held.

Difficulty in obtaining capital

Private business owners use several methods in their attempt to get capital. Some use Private Placement Memorandums or Offerings. These are difficult to obtain, because business owners cannot advertise that they are looking for capital and because accredited investors must provide the majority of the capital brought in. Another means of trying to obtain capital is through banks. This has become increasingly difficult because most banks require collateral and most business owners need the money because of their current lack of collateral.

Some business owners of privately held companies have sought after venture capitalists. The large majority of these investors require either a significant amount of interest on their money, a significant percent of the owner’s company, or both. Because business owners that need capital find it difficult to find capital elsewhere, they often make this choice, often regretting the decision later.

Lower market value upon sale or merger of the company

When privately held companies receive valuations before a sale or merger, the market value, on average, is 30% lower than a company of the same size and value whose stock is publicly traded. This is because the stock in a private company isn’t marketable, and therefore cannot be traded easily.  Someone buying a public company has an exit strategy that private companies do not, that is why owners of public companies receive full value for their businesses.

For private business owners who want the benefits of public companies without the challenges of the traditional markets, contact the Independent Stock Market.