Investors often come across terms like private companies, public companies, and unlisted shares. Understanding these classifications is crucial before making investment decisions.
What is a Private Company?
A private company is one that is not publicly traded on stock exchanges. It is owned by founders, private investors, or institutions.
Characteristics of Private Companies:
- Limited number of shareholders (as per the Companies Act, maximum 200 for a private limited company).
- Not required to disclose financials publicly.
- Typically raise funds through venture capital, private equity, or angel investors.
- Includes startups and family-owned businesses.
What is a Public Company?
A public company is one that is listed on stock exchanges, meaning its shares can be freely traded by the public.
Characteristics of Public Companies:
- Shares are listed and traded on stock exchanges like NSE and BSE.
- Must adhere to SEBI regulations and public disclosure norms.
- Raises capital from public investors via IPOs and follow-on offerings.
- Includes large corporations with widely held ownership.
Where Do Unlisted Shares Fit In?
Unlisted shares belong to companies that are not listed on the stock exchange but are open to private trading. These can belong to:
- Private companies looking to raise capital before an IPO.
- Public companies that have delisted from stock exchanges.
- Subsidiaries of listed firms that remain privately held.
Key Differences Between Private, Public, and Unlisted Shares Why Invest in Unlisted Shares?
- Opportunity to invest early in high-growth companies.
- Potential for higher returns if the company eventually goes public.
- Diversification outside the traditional stock market.
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