Can a Public Company Go Private? (Step By Step)

Well, yes, public companies can easily go private through a straightforward process. If a private investor buys enough company shares, it can go private. But, if the company gets its shares back by buying them, it can go public again.

How Can a Public Company Go Private?

Public companies go private daily, and it’s often called delisting. It means the company’s stocks aren’t listed on the stock exchange. The company doesn’t qualify for any public trading. All its shares are classified as private and officially become a private company.

The unique thing about private companies is that their shares are no longer available to ordinary investors.

You need to be an accredited investor or organization if you want to buy stocks of a private company.

A company has to sell enough of its shares to a private investor to be delisted by the SEC, which is the answer to how a public company can go private.

In simple terms, a company can go private and sell its maximum shares from the public market to a private investor.

Once the company sells its shares, the owners announce that it’s officially delisted and is now a public company.

It often affects the popularity of a company because people don’t like companies to go private.

But at times, companies also perform better under a private owner.

Ways that a Public Company Goes Private

There are many ways a company goes private, more than one. We’ll be looking into some of these options, giving you a clearer idea of how it works.

1.  Private Buyout

This option is relatively straightforward. A private investor will see that a company is flourishing rapidly and has enough potential.

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So, he’ll decide to invest in that company and buy most of its shares.

Then, the company goes private, and all its shares are lifted from the public trading spots.

The new owner becomes the sole decision maker because he owns most shares and has the final say in all the company’s important decisions.

2.  Reverse Stock Splits

The reverse stock split doesn’t have a good name in the stock market world. It tells that a company’s share price has decreased, which is never good. People often like to buy a lot of stocks at a smaller price.

It means that the companies are lowering the number of shares and increasing the price of every share.

It doesn’t impact the company’s value, so it doesn’t make much profit for the owners. The company eventually delists after reverse stock splits.

3.  Corporate Purchases

It is another trick by which a company could go private. A company purchases most of its stocks from the market, and only a few public investors will remain in the shareholding authority of the company. Once the company buys all its shares, it can delist.

Yes, a company can independently become delisted, take off all its shares from the public, and delist at its own will.

It often happens when companies want to give profits to their investors and reduce the number of people owning their shares.

4.  Corporate Merging

Corporate merging is very common among two public companies. If a company thinks its rival company is having a hard time, it can buy most of its shares from the market and become its new owner.

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It can potentially make all the decisions for the company, and this merger could benefit the two companies greatly.

Plus, the parent companies that buy the shares could delist the other company so other investors can’t believe its shares.

Corporate mergers are very profitable for the most part.

What Happens to the Shareholders If a Company Goes Private?

When a company goes private, its shareholders can no longer claim ownership over the company.

The new owners buy most of the shares, and the current shareholders sell them at the right price.

These shareholders are often given a very high price to give up their part of the shares. Once the shareholders sell their shares, they can’t repurchase them through any broker.

But, for a company to go private, most shareholders have to agree to sell their part of the shares.

Also, once a company goes private, the shareholders cannot sell their shares in the public stock exchanges either.

So, they only have one option: sell it to the company itself or to the company’s new owner.

The shareholder usually gets a cash payment for each one of his stocks at an agreed-upon rate.

So, it’s not a bad thing if you’re getting a handsome amount for your shares.

Can a Private Company Go Public?

Yes, a private company can quite easily go public, and the process is similar to a public company going private.

They must put their shares on the public stock market for people to buy them. The value of a company often increases after becoming public.

When a company goes public, it increases its chances of growth and expansion.

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But, current shareholders can’t sell their shares as soon as a company goes public. There are 180 days; after that, they can sell the shares wherever they want.

Though multiple shareholders also mean that decision-making becomes a little tricky, making everyone agree on the same thing is difficult.

Once the company starts growing, the shareholders can cash out their part of the share or keep getting the profits from it.

In addition, the process of a company going public is quite expensive and time-consuming.

Also, you need to pay attention to equity because you would never want to dilute most of your shares.

The owner needs to own more equity than anyone to have the final say in all decisions.

But if we ignore a few of these disadvantages, it’s great for a company to go public and sell its shares in the open market.

It helps them become a part of more prominent companies or onboard experienced investors.

Conclusion

Lastly, we hope you found the answer to whether a public company can go private. This process is relatively simple, but there isn’t a good name for privatizing companies.

However, if you are already a shareholder in a company on the verge of privatization, don’t worry because you’ll get a fair amount for your shares.

Privatization of a public company does take some time, but it makes it easier for you to make decisions or return the profit to the investors and become the sole decision-maker of the company.

It sure makes management hassle-free, but you need to delist first to get the most out of it.