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Step 1 of

From Private to Public

Cool Hatz

Imagine you’ve set up a new business: a hat shop, called Cool Hatz. At the start it’s a private company because you own 100% of the company and take 100% of the profits. You could go into partnership with your brother, or even with a group of investors, or give shares to your employees, and it would still be a private company. That’s because nobody else can buy a stake in the company, unless you come to a special agreement. The shares are not traded on a public stock exchange.

Private companies:

With a public company on the other hand, its shares are listed on the stock exchange, and anyone can buy and sell them with a click of a mouse. It has to give regular reports to its investors, hold meetings, and make its accounts public. Its shares go up and down in value all throughout the day, every day. Most large U.S. corporations are public companies.

The process of transforming from a private company to a public company is called an IPO, or Initial Public Offering. You offer shares in your company at a particular price, and if enough people are interested in investing, you’ll sell the shares and list on a stock exchange like the NYSE or NASDAQ. You’ll even get a ticker symbol, and be able to watch as your stock price soars and swoons by the hour.

So, public companies:

  • Are owned by thousands or millions of different people, from regular investors like you and me to large investors like mutual funds.
  • Are listed on a stock exchange, like the NYSE or NASDAQ, so that you can buy or sell their shares easily – often millions of shares change hands every day.
  • Range in size from smaller companies worth around $5 million right up to companies like Apple, which are worth more than $400 billion!

There’s a lot more to IPOs, and we’ll cover that in the remaining steps. For now, here’s a quick video explaining more of the basics.

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