Facebook IPO - Tutorial 1 - Private vs Public Companies

Sometime in the second quarter, a magic wand will be waved transforming Facebook into a publicly held company……That may be how it appears to the masses but there’s a lot more going on behind the scenes. This is the first of a series of quick and simple tutorials that will use the interest generated by the Facebook IPO to teach some stock market basics.

Facebook, like most start-up businesses, is a privately held company. This means that their shares are held by employees and/or a limited number of investors but not available to the general public. On February 1st, Facebook made it official – they want to raise money by selling stock to the general public and have their stock traded on either the NYSE or NASDAQ. In other words, Facebook wants to become a publicly held company enabling just about anyone to buy/sell their stock.

Companies “go public” because they can raise HUGE amounts of money ($5B in the case of Facebook) and make it easy for all shareholders, new or existing, to buy and sell shares.

So why wouldn’t all companies “go public”?

First of all, a company has to satisfy both the SEC and the public that it is worthy. Facebook started this process with their IPO filing a few weeks ago. Secondly, being a publicly held company carries a tremendous amount of complex legal and reporting requirements that can be very expensive and burdensome.  Lots of companies have weighed the pros and cons of “going public” and have chosen to stay private including biggies like Levi Strauss, Mars (maker of M&M’s and Snickers), Ikea, and Hallmark. In fact, some companies like Wrigley, Playboy, and Burger King were once publicly held companies that recently went the other direction back to privately held.

When Facebook was weighing the pros and cons, they had something else to consider that had to have an impact on the timing of their IPO. The number of shareholders of this privately held company was approaching the magic 500 mark. The Securities and Exchange Act states that once a company’s assets exceed $10M AND the number of shareholders exceeds 499, it must adhere to all of those public-company filing requirements. Well, if you have to adhere to all the requirements, you might as well reap the benefits and go public! So the decision was made….IPO….target Q2…..lots of work to do!

Although Zuckerberg doesn’t know it, Facebook will earn another important distinction when it becomes a publicly held company…….it will be added to GiveAshare.com’s stock list joining over 100 other world famous companies like Disney, Harley, Apple, and Starbucks. Imagine…. making our stock list and becoming a billionaire all in the same day!

For more information, see our Facebook stock page and sign up for our notification list.

Update May 2, 2023:

Facebook has changed its corporate name to Meta as of Fall 2021 and became one of the few companies to become a member of the Trillion Dollar Club.

Stay tuned for more tutorials.