Charisma of the Private Sector

The decision of keeping an organization private or public requires complicated analysis. Many conflicting factors, including the net worth of the company and the market trends, influence this decision. A public corporation can sell its stocks in the market, and the stockholders become the key investors and managers of the company. A private business, on the other hand, does not trade public shares. It is important to consider the corporate laws and regulations regarding different corporate sectors. These bindings have an enormous impact on the financial growth and future earnings of a company. Between a choice of staying in the private or public sector, the Celeb-Erase company, considering the current trends of the market, should lean towards staying in the private sector.

The advantage of a private enterprise is that it is handled by a few people, who are mostly founding members of the company. They are not consumed by the “nagging” corporate expectations and reporting, and the top management does not have to deal with the scrutiny of stockholders. This freedom gives the management an open hand in making the best decisions in the interest of their company, without unnecessary surveillance. Private companies have lenient disclosure policies, with financial disclosures of the companies’ market values and shares intended only for interested private investors. They are not required to reveal their financial information, unlike public companies who are obligated to report their finances to the Securities and Exchange Commission (SEC). It is mandatory for public companies to declare their financial information to investors. Furthermore, the Sarbanes-Oxley Act of 2002 placed a series of restrictions on public companies. Violations of financial non-disclosure rules carry serious legal implications. Private companies are exempt from this act.

Small public companies with a market valuation below $500 million have more potential of financial growth in the private sector. They are exempt from reporting requirements, Sarbanes-Oxley compliance, and legal and auditing concerns. Celeb-Erase, after its huge success with its celebrity erasers, has proved itself to be a successful Wall Street market “hitter.” This corporation has a good potential for growth and strong financial returns. It should not have a problem looking for an investor, private bank, or broker with interests in consumer-oriented companies. It would serve this company better to seek a private investor than go through the hassles of public sector regulations.

There are some privately owned companies that have grown into huge financial concerns, such as Cargill, Ikea International, Mars, and Hallmark Cards. United Parcel Service (UPS) and Goldman Sachs are also reputable and illustrious private companies. Mergerstat published its market survey highlighting 197 public-to-private sector shifts in 2000, with 282 in 2001, and 316 in 2002. This report of shifting trends from public to private sectors proves the potential of growth in the private sector.

With increasing regulations in the public sector and a more solid private equity market, there is less attraction for companies to stay in the public sector. The private sector has the advantage of getting loans according to needs, with tenors ranging from eight to fifteen years and extending up to twenty years for expansion projects. The interest rate on these loans can be fixed or floating according to the market conditions. Management and Chief Executive Officers find the less pressured environment of a private company ideal to show their productivity and bring in better results in terms of company earnings. In the private sector, corporations can plan their long-term strategies and goals without the time-consuming regulations of annual and quarterly financial reporting. There is an increasing interest in the private sector for investors because of fewer liabilities regarding reporting and financial disclosures. The Sarbanes-Oxley Act and legal and audit restrictions make it difficult for a public investor to thrive in the stock market.

In conclusion, staying private is an appealing alternative for Celeb-Erase. The benefits of less liability, better planning of long-term strategies, lenient bank loan policies and interest rates, and less disclosure and reporting requirements all make the private sector an attractive alternative for this company’s growth potential.

Sources:

“Going Private.” BusinessWeek Online. March 2005. November 21, 2006. <http://businessweek.com/magazine/content/06 09/b63973001.htm>.

“Public Company.” Wikipedia: The Free Encyclopedia. November 2006. November 21, 2006. <http://en.wikipedia.org/wiki/Public company>.

“Public Company Considerations for Going Private.” Mercer Capital. November 21, 2006. <http://www.bizval.com/Publications/articlelibrary/PublicCompaniesConsiderPrivate.htm>.

“Public Vs. Private Companies.” Monday Matchup. November 8, 2006. November 21, 2006. <http://www.forbes.com/entrepreneurs/2004/11/08/cx_sr_ 1108mondaymatchup.html>.