8.6 Private equity
There are several reasons why private equity may prove to be a better option than issuing public shares.
- If a business is too small, does not have a track record or has too high a business risk profile staying privately owned may be the better option
- Staying privately owned means that there is less requirement to disclose details about the business to the public (and competitors).
- There is less onerous compliance and regulation when staying privately owned.
- Raising private equity from local investors or friends may be quicker.
- Dilution is the term used to describe the situation where each shareholder’s interest in the total business is reduced as more shareholders are invited into the business. The more shareholders with voting rights, the less control you have.
- Staying privately owned means less exposure to a hostile takeover and less pressure to produce consistently high profits to keep shareholders invested.