What is Going Private?

The term going private refers to a company's departure from listing shares on any exchange. It is the opposite of going public.

How Does Going Private Work?

The primary activity involved in going private is deregistering a company's securities with the SEC. Companies that were once public can go private if it has fewer than 300 shareholders (or fewer than 500 shareholders in some circumstances). Companies might also go private when another company or entity makes an offer to buy all or most of the company's publicly held shares, the company merges with another company, or the company declares a reverse stock split that brings the number of shareholders below the legal threshold.

When those things occur, the company becomes ineligible for listing on an exchange or registration with the SEC, according to rule 13E-3 of the Securities Exchange Act. A company must file a Schedule 13E-3 to officially go private.

Why Does Going Private Matter?

Going private can happen for several reasons. One of these reasons is that a company's shares are no longer widely held or actively traded and thus do not meet the minimum requirements of being listed on an exchange.

There are several advantages to going private as well, particularly fewer special governance considerations and fewer disclosure requirements that can be time-consuming and expensive. Going private also means less analyst coverage, media coverage, and pressure to address both short-term and long-term trends in the share price.