Is Facebook a Private Company?
Facebook is one of the most transformative social media platforms. When it first appeared on the internet, it provided web users with a new way to stay in touch with friends and reconnect with old ones. Read through this article to answer the question, “Is Facebook a private company?”
Is Facebook a Private Company?
No, Facebook is not a private company anymore. Facebook went public in 2012 with an IPO priced at $38 per share. An IPO occurs when a private company sells shares of its stock to the public on the stock exchange.
It gave ordinary investors the opportunity to own a piece of Facebook. In most cases, this gives shareholders a vote in the company on certain issues. They have some say in how the company proceeds.
This is to protect their investments and earn money from dividends when the company makes a profit. Although Facebook is a public company, it operates as a private company. There’s a good reason for this.
Why Facebook is Still a Private Company?
Facebook’s situation differs from that of most publicly traded companies. Although it is a public company, most of the company is still owned by a private individual.
Mark Zuckerberg owns the most shares in the company, both personally and through agreements with early investors. He also structured the shares so that even if he owned fewer shares, he would still have a lot of control over the company.
That’s because he divided the shares into two types. When Facebook went public, the average investor purchased Stock A. Each share of stock A provided those investors with five points of voting power.
More Information on why Facebook is Still a Private Company
This type of structured stock system is not a new concept. There are many other businesses that do something similar. One such example is Google, another tech behemoth.
Entrepreneurs who wanted to keep control of their companies while reaping the benefits of crowdfunding created this type of structured stock system.
It saved them from having to sell their own shares, which could have led to their dismissal from the company they helped build.
How does Zuckerberg Keep his Stock’s Power when Early Investors Sell?
What happens when an early investor sells their stock is one issue you may notice in a structured stock system? When Facebook announced its intention to go public, inevitably, some of the early investors would sell.
One would think that the average public investor who purchased those shares would be granted 10 points of voting power. That is not correct.
When an investor sells their stock, it reverts from stock B to stock A, according to a clause written by Zuckerberg. This means that an investor who purchases stock B from an early investor is actually purchasing stock A.
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Can Mark Zuckerberg Choose his own Successor?
nother significant distinction between most public companies and Facebook is the selection of a successor. In most cases, a publicly-traded company votes on who will be the next CEO.
The board will deliberate on various nominees before voting. This gives general shareholders the opportunity to help steer the company in the best possible direction.
However, Facebook’s shareholders will notice that they do not have this power. Another provision that Zuckerberg included was the ability to select his own successor.
Why does Facebook Being Mostly Private Matter?
Given that Facebook is publicly traded, you might wonder why it matters if Zuckerberg retains control of the company.
Here are a few reasons it matters that Facebook is mostly private.
The risk to shareholders is one of the most important reasons Facebook is mostly private despite being a public company. When a company goes public, it essentially hands over small portions of its ownership to the public.
Crowdfunding allows the company to invest and earn higher profits. It is also accountable to its shareholders. If shareholders are dissatisfied with the company’s performance, they can choose to sell their shares.
This not only reduces their investments, but it also implies that the company may lose money. This can sometimes be enough to bring a company to its knees.
Further Information on Risk
There is always some risk by the investor in any investment venture. As a reward for taking that risk, they give them a controlling stake in a company.
Because of Facebook’s unique stock structure, its shareholders have far too little say in the company’s operations.
Even if all shareholders agreed to vote, Zuckerberg still owns a significant number of shares, allowing him to veto the vote.
2. Caught up in Scandals
In the past, they have embroiled Facebook in several scandals. The discovery that they sold private information about individuals to third parties was one of the most common.
They widely assumed that these third parties used the information to create targeted advertisements for those individuals.
Those advertisements could be as benign as promoting a product for them to purchase or as nefarious as promoting a political idea. It was a decision that was ultimately left up to Zuckerberg.
There has been much debate about whether social media platforms may censor. While they frequently mentioned Twitter in this debate, Facebook is also frequently mentioned.
Some claim that Facebook has censored specific posts or accounts. The public is divided on whether the company has the legal right to do so.
They made this issue more complicated by Facebook’s unique status as a public company with private ownership. The shareholders may have powerful feelings about the issue.
However, because Zuckerberg owns the majority stake, his opinion is crucial. He’ll be the one who decides whether Facebook censors.
What are the Benefits of Facebook Being a Private Company?
Before Facebook became public, it enjoyed some benefits as a private company. Here are a few benefits that other companies can enjoy if they remain private.
1. Finances are Private
When a company goes public, one of the SEC’s requirements is that the company publish quarterly financial reports. This provides shareholders with information about how their investments are performing.
It also makes it more transparent, assuring future investors that their investments are safe. The issue with this is that it frequently backfires on businesses. To satisfy shareholders and analysts, they must consistently report profits.
That isn’t always the case, because the market fluctuates daily. Because the company is private, it is not required to publish its quarterly reports. Before going public, Facebook could keep its financial records private.
More Information on Finances are Private
This can be detrimental to the public company. A private company keeps that information private. It forces its competitors to figure out what it is doing to be successful.
It also aids in the concealment of any poor performance that the company may experience throughout the year. When analysts notice poor performance, they are quick to call it out.
This can make people hesitant to shop at the company, further harming it. It may also turn off private investors on whom the company is reliant.
2. Focus on Long-Term Goals
Many public companies struggle with providing short-term results that satisfy their shareholders. When shareholders see a poor quarter, they become concerned.
To avoid this, public companies are under a lot of pressure to focus on short-term goals in order to satisfy shareholders and perform well each quarter.
That pressure does not apply to a private company. While it may focus on short-term goals as well, they can direct most of its attention toward long-term goals.
3. Control Over Corporation Governance
Another advantage that Facebook had, and still has to some extent, is control over the company’s governance. A private company can structure itself however it sees fit.
This enables it to be more adaptable and quick to act. When a company goes public, the SEC imposes a few restrictions on how it must be structured.
It requires a board of directors, for example, to represent the shareholders. They then built the rest of the organization around the board.
What are the Benefits of Facebook Being a Public Company?
After 2012, Facebook became a publicly-traded company. Anyone can purchase its stock in the stock exchange. Facebook could have remained private but went public.
Here are a few advantages Facebook has received because of its decision to go public.
1. Fast Capital Gain
One benefit of an IPO is that the company receives a large amount of capital quickly. The company becomes wealthy because of the influx of investors.
This enables it to finally finance investments and innovations that it had planned but lacked the funds for. It can buy out competitors, increase marketing, and finally have the funds to take the company to the next level.
2. Attracts Private Investors
Although going public allows ordinary investors to purchase shares, being a public company also allows it to attract private investors. Private investors typically have a lot of money to spend on stocks.
This not only gives the company some prestige, but it also allows it to use the money to reduce its debt ratio.
A public company, in collaboration with private investors, can attract top-tier talent to its company and senior management.
A final advantage of going public is that it raises a company’s perceived value in the eyes of the general public. For many people, a company going public means that it has achieved success in business.
This enhances its reputation and makes the company appear more valuable. This perception not only attracts more investors but also more customers or clients.
It instills greater trust in those considering using the company’s services or products.
Facebook was previously a private company, but it went public in 2012. However, because of the way the company structures its stocks, many people regard Facebook as a limited private company
Although the company has many shareholders, Mark Zuckerberg retains primary ownership and control.