Question

The company, Facebook, is valued at more than $50 billion. Yet, because it is still privately held, it is not required to make any disclosure about its finances. Once the number of its shareholders reaches 500, it will be deemed a public company and will be required to make significant (and expensive) financial disclosure Should the SEC change its rules so that these reporting requirements are not triggered until companies have more than 500 shareholders? Which is more important – to minimize the disclosure burden on companies or to protect investors who are willing to buy stock even without financial disclosure?

Answer 1

Private companies are generally not required to publish their financial information to the public. However, in case when the total number of shareholders goes beyond 500 they are generally required to publish financial information just like a public company.

 

It is wise on the part of the SEC to make it obligatory for the company to publish its expensive financial information soon after the number of shareholders exceeds 500. It is more important to protect the interests of shareholders than reduce the burden on companies. This is because as the number of shareholders increase, there might be some small investors who could be easily deceived by some companies by not giving full financial information. Protecting the interests of shareholders will get easier if all the financial information is disclosed periodically.

Private companies are generally not required to publish their financial information to the public.