Private Company (versus public)

What's the difference between a private company and a public company?

One word: regulation.

Private companies have virtually none. That is, they are only "regulated" by the contracts that are passed among the key parties. "I agree to invest such and such amount of money to buy this many shares" and outlined in the contract herein runs what happens to that money, given various outcomes. Private companies are usually funded and covered by the wealthy. And the government feels that the wealthy can afford their own lawyers, that they have enough education to know that they need lawyers, and, well, they’re on their own.

In the case of public companies, however, things are very different. The government feels like it owes protection to the Joe Plumber Sixpack, who invests his hard-earned $3k a year in savings in Coca-Cola stock. Coke, arguably the most public of public companies, lives under all kinds of rules. Disclosures of operations, disclosures of finances, and disclosures of governance and CEO compensation, or bottling plant problems in Sao Paulo, or even that lawsuit over that carbonated swimming pool boondoggle in Nairobi.

Why so much paperwork and disclosure bureaucracy? Well, the government feels that if they require all of these notices from Coke, then Joe Plumber Sixpack is somehow protected.

Does Joe ever read those Coca-Cola document disclosure statements? Eh, pretty much never. Would Joe understand them if he did read them? Eh...probably not. So why bother with them?

Well, in theory, it's just meant to be an added layer of protection for stockholders, in case Joe decides to take a Shmoop financial literacy course and becomes a Rain Man-level genius with the digits.

Of course, on the other hand, there are a lot of government people who need employin’, and Coke pays lots and lots of fees for all of that uh…disclosin’. So, as usual...follow the money.