Many businesses are privately held, or owned by a small number of people, usually their founders, who might extend ownership to a few outside investors or employees.
In these companies, the owners make major business decisions, control profits, and usually manage the company directly. They decide who may become an owner and how ownership may change hands.
The public good
Incorporation
When a company incorporates, it becomes a legal entity
treated in many cases as separate from its individual
owners. For example, a corporation can be sued,
can enter into contracts, and pays taxes. It can
also exist in perpetuity, even if individual owners
sell off their shares or pass away. If you simply
own shares in a corporation, you're not individually
liable if that corporation is found guilty of wrongdoing.
A publicly owned company needs to be run differently. It
answers to several groups of stakeholders. Most important,
it answers to public
shareholders,
who own the company. It also has the obligation to provide accurate information to regulators and the securities industry.
While a privately owned company also answers to stakeholders,
such as creditors, employees, and customers, the owners have more freedom
to make business decisions in their own interest. In a publicly owned company,
the decision-makers aren't the owners and instead run the business in the
interest of others.
Because of the potential for fraud, should management find its self-interest in conflict with the interest of its shareholders and the public, regulators supervise the governance of public companies to protect shareholders and to maintain public trust in the entire system of public investment and stock ownership.
