| Zach owns shares of stock in DDD Scientific Research, Inc., a publicly-traded corporation. In the mail, Zach received a notification that the company plans to "go private." The notice explained the company plans to offer its shareholders cash in order to reacquire all of its outstanding stock. Zach needs more information.
Going Public vs. Going Private
When a corporation "goes public," it means that outside investors may obtain shares of stock in the corporation. In order to go public, a corporation's stock must be registered with the United States Securities and Exchange Commission (SEC). After the registration process is complete and the SEC has made a thorough investigation of the corporation's application for registration, the corporation may make an initial public offering (IPO) of shares of its stock. After a company goes public, federal and state law impose numerous obligations on the company as far as reporting and disclosure.
On the other hand, a company "goes private" when it takes action to reduce the number of its shareholders to less than 300. When a company goes private, it is no longer required to comply with the reporting requirements imposed by federal and state law. The end result of such action on the part of a company is that the stock of the company is no longer publicly-traded.
What Are Some Reasons Why A Company Would Go Private?
Several reasons may exist as to why a company takes action to go private. For instance, company may go private if it merges with another company. Moreover, a company may decide to go private if it is acquired by another individual or entity.
What Procedure Must A Company Follow When It Goes Private?
In accordance with the Securities Exchange Act of 1934, a federal law, a company must make certain disclosures to its shareholders in the event it goes private. In essence, the company must disclose the particulars of its decision to go private.
Furthermore, certain state laws impose additional requirements. Generally speaking, the state laws afford shareholders certain dissenter's rights. The state laws vary from state to state and must be consulted individually for further details.
What Does It Mean For A Shareholder When A Company Goes Private?
For a shareholder, a company's decision to go private usually means that the shareholder must decide whether to sell his or her stock. It might also mean that the company will offer the shareholder a smaller number of shares of stock in exchange for a larger number of shares of stock. The most important consideration for a shareholder is that, once the process is complete, the company's stock will no longer be traded publicly. Thus, if a shareholder elects to hold onto his or her shares, the shareholder may find it difficult to sell the shares at a later date. Copyright 2010 LexisNexis, a division of Reed Elsevier Inc. |