Public and Private Companies

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Public and Private Companies

Common questions covered here
What is the difference between public and private companies?
What does it mean to be a public company?
Are most startups private companies or public companies?

โ€‹Definitionโ€‹ Public companies are corporations in which any member of the public can own stock. People can buy and sell the stock for cash on public stock exchanges. The value of a companyโ€™s shares is the value displayed in the stock market reports, so shareholders know how much their stock is worth.

โ€‹Definitionโ€‹ Most smaller companies, including all startups, are private companies with owners who control how those companies operate. Unlike a public company, where anyone is able to buy and sell stock, owners of a private company control who is able to buy and sell stock. There may be few or no transactions, or they may not be publicly known.

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Governance

โ€‹Definitionโ€‹ A corporation has a board of directors, a group of people whose legal obligation is to oversee the company and ensure it serves the best interests of the shareholders. Public companies are legally obligated to have a board of directors, while private companies often elect to have one. The board typically consists of inside directors, such as the CEO, one or two founders, or executives employed by the company, and outside directors, who are not involved in the day-to-day workings of the company. These board members are elected individuals who have legal, corporate governance rights and duties when it comes to voting on key company decisions. A board member is said to have a board seat at the company.

Boards of directors range from 3 to 31 members, with an average size of 9; for private companies the typical board size is typically between 3 and 7 directors.* Boards are almost always an odd number in order to avoid tie votes. Itโ€™s worth noting that the state of California requires public companies to have at least one woman on their boards.*

Key decisions of the board are made formally in board meetings or in writing (called written consent).* Equity grants have to be by the board of directors.*

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