Introduction to Business

Why a closely held corporation might choose to remain private

            Closely held corporations may choose to remain private because of the following reasons; firstly, privately owned corporations normally have a few shareholders and some businesses may prefer a company to have a few players hence opting to remain as private. Some corporations may choose to remain private if they do not want the information about their operations to leak for example leakage of information exposes your information to various stakeholder such as the suppliers, the customers and the competitors. Privately held companies do not disclose details about their operations and this may deny competitors information. Corporations may also choose to remain private in case their business requires confidentiality (Ebert & Griffin, 2003). Information such as legal settlement, executive compensation and other sensitive information is always kept confidential in privately owned corporation which is not the case with publicly owned. Corporations may also choose to remain private because of the flexibility in structuring the company for instance they can structure their company such that the incomes flows to the shareholders who are then taxed, thus avoiding the risk of double taxation (Ebert & Griffin, 2003).

Why it might choose to be publicly traded

            However, there are also valid reasons that a closely held corporation may choose to be publicly traded. Public corporations offer stock shares to be purchased by the public and this can be a good way to raise funds in case of financial shortages. A closely held corporation may also choose to be publicly traded because of the ease of borrowing in public corporation (Griffi, 2007). In case of financial need, it is easier for a publicly owned corporation to borrow money from outside sources compared to private corporations. Banks may see it easier for public corporations to pay back the money borrowed due to multiplicity of the investors involved. Similarly, the customers may also prefer a public corporation keeping it that their purchases will yield a huge profit as a result of diversity of people (Griffi, 2007). Finally it is easier to sell and buy shares in a publicly held corporation.

References

Ebert, R. J., & Griffin, R. W. (2003). Business essentials. Upper Saddle River, N.J: Prentice Hall.

Griffi, (2007) introduction to business. Published by Prentice Hall, 2007