🧠 Frequently Asked Questions (FAQs)

Would it be correct to assume that the only financing options available to small business firms are retained earnings and bank loans since they are “too small” to issue bonds and stock?

Retained earnings and bank loans are major sources of finance for small firms. However, small firms can also sell stock to wealthy individuals, or borrow money from them. Firms can’t legally sell stocks or bonds to small investors unless they fill out an immense amount of paperwork (the paperwork is designed to protect small investors from scams and in my opinion works well). To learn the difference between a small investor and a wealthy one, Google “Accredited Investor.”

Could you please clarify how “large” a corporation needs to be to issue bonds and stock?

A company’s stock must be worth at least $40M in total to be listed on the New York Stock Exchange. Also, there is an issue of “public” vs. “private.” In the US, if you wish to list your company on a stock exchange, the SEC requires that you must provide a lot of information and do a lot of paperwork. This is called going public. This is a significant burden, so only companies that are relatively larger are willing to do it and become a “public” company. If you don’t do this, you are a “private company.” If you’ve heard of Private Equity, that is an investment into private companies that aren’t doing all of this paperwork.

So you can only list your company on a stock exchange as a public company? Not private?

Yes.

What are benefits of being private and being a public company?

Bruce will explain this later when we do stocks.

• Pros of public - you can sell stock to more people
• Cons of public - paperwork
• Private - can make decisions quicker, don’t need consent from shareholders. But your stock can’t be traded on stock exchanges. Public - get public exposure, public financing, but extensive reporting required

Do public companies ever go back to private?

Yes, Dell was public, but Michael Dell and private equity investors took it private. This allowed them to do less paperwork. Because there were only a few owners, they felt like they could turn the company around quickly and run it more effectively. If you hear the term “leveraged buyout” or “LBO,” that is generally an example of this.