Skip header Skip to main content
Graphic of a lock.

Private Property: What It Means When a Company Goes Private

Written by The Content Team | Published on September 19, 2018

Investing Academy.  Knowledge Supports Success. Visit now.

It's pretty common to hear about companies "going public" with an initial public offering (IPO) of shares. Less common, however, is to see an already public company "go private." That's when a small group of investors (often current management, large shareholders, founders or interested private equity firms) makes an offer to buy all of the existing shares of the company (a buyout), resulting in delisting the company from a stock exchange in favour of private ownership.

What Does Going Private Mean For Investors?

As with anything investment-related, the benefits and challenges of a stock buyout are personal. A buyout could be positive, since you may realize a profit on your original investment, or it could result in a loss.

Buyout offers are often made at a premium because the buyers are keen to take the company private and want to ensure the deal is successful. For this reason, any hints that a company is considering going private can push a stock price higher, as investors see potential gains in buying the stock just before the buyout. It's important to note that these deals are complex and buying stock based on a potential buyout is risky and can lead to owning stock you may not necessarily want.

Of course, once you sell your shares you are no longer a part owner of the company and won't benefit from any future growth. And if the price offered is below the price you originally paid for your shares, you will incur a loss.

As an individual investor, you generally hold little power in these going-private scenarios, unless you are a significant shareholder. In order for a company to go private, a majority of shareholders must agree to the buyout offer. Technically speaking, you have the option to refuse to sell, but in reality, few do because the offer is typically at an attractive premium.

The Business Side of Things

From a business perspective, there are pros and cons to both public and private ownership — and the decision to choose one or the other structure is specific to each company. Here are a few key characteristics of each:

Publicly traded companies...

  • Trade on a stock exchange and shares can be bought and sold by the public through a brokerage
  • Can access public markets to raise new money for growth initiatives
  • Must adhere to regulatory rules, and stringent reporting standards mean financial details are publicly available, including everything from management salaries to quarterly earnings
  • Answer to shareholders, who have the right to vote on matters such as board composition and other major issues

Privately owned companies...

  • Do not trade on a stock exchange
  • Rely on private money for any funding requirements
  • Are not required to disclose financial information or make earnings public

Why private?

There are a number of reasons why a company may choose to go private, ranging from a desire to stay out of the public eye (without quarterly reporting requirements, it's easier to fly under the radar) to avoiding the cumbersome regulations that publicly traded companies must adhere to.

One reason often cited is a desire to think longer-term without the stock-price-cloud hanging over every decision. If a public company wants to make a substantial, long-term investment in the business — one that may take time to show its added value — it can be difficult to do knowing that financial reports could suffer and markets may react negatively, pulling the company's stock price down. Some leaders decide they want more freedom to make decisions without worrying about disappointing shareholders.

*This article was updated on May 15, 2019.

RBC Direct Investing Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. RBC Direct Investing Inc. is a wholly owned subsidiary of Royal Bank of Canada and is a Member of the Canadian Investment Regulatory Organization and the Canadian Investor Protection Fund. Royal Bank of Canada and certain of its issuers are related to RBC Direct Investing Inc. RBC Direct Investing Inc. does not provide investment advice or recommendations regarding the purchase or sale of any securities. Investors are responsible for their own investment decisions. RBC Direct Investing is a business name used by RBC Direct Investing Inc. ® / ™ Trademark(s) of Royal Bank of Canada. RBC and Royal Bank are registered trademarks of Royal Bank of Canada. Used under licence.

© Royal Bank of Canada 2024.

Any information, opinions or views provided in this document, including hyperlinks to the RBC Direct Investing Inc. website or the websites of its affiliates or third parties, are for your general information only, and are not intended to provide legal, investment, financial, accounting, tax or other professional advice. While information presented is believed to be factual and current, its accuracy is not guaranteed and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author(s) as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by RBC Direct Investing Inc. or its affiliates. You should consult with your advisor before taking any action based upon the information contained in this document.

Furthermore, the products, services and securities referred to in this publication are only available in Canada and other jurisdictions where they may be legally offered for sale. Information available on the RBC Direct Investing website is intended for access by residents of Canada only, and should not be accessed from any jurisdiction outside Canada.

A wire head wearing a baseball hat connecting last month's top traded stocks.

Top 10 Traded Stocks and ETFs in April 2024

Here's what RBC Direct Investing clients traded and added to watchlists in April.

Rollercoaster with dollar symbols

What Happens To Stock and Bond Prices When Rates Fall?

We look at how stocks and bonds may react to declining rates.

Person reading a company balance sheet

Here Are Your Company Balance Sheet Crib Notes

Understanding this statement is a must for investors interested in trading.

You Know More Than You Think

A guide to investing in stocks.
Find out more