The pressure of being answerable to multiple stakeholders and shareholders is apparently weighing on Tesla Inc (NASDAQ: TSLA) CEO Elon Musk.
Tesla might be better off as a private company, Musk said in a recent interview with Rolling Stone's Neil Strauss.
"I wish we could be private with Tesla," Musk said. "It actually makes us less efficient to be a public company."
Before analyzing Musk's take on this, let's take a look at the key differences between public and private companies.
Public Vs. Private
A public company or publicly-traded company is one that's offered its shares, partly or wholly, to the public in order to raise capital for operations. Usually, this is done through an initial public offering, or IPO.
Once an IPO is done, the company's shares are listed on an exchange, which facilitates buying and selling shares.
On the contrary, a private company is closely held.
Each structure has its own merits and demerits.
A public company has to comply with regulations and disclose any material information, including financial statements, that can impact the stock price. In the U.S., public companies file all market-sensitive information with the Securities Exchange Commission.
The logic for this diktat is that even the smallest of a shareholder in a company can claim ownership to the extent that they hold a stake in the company.
See Also: Tesla's Building Blocks To Reengineering The Future
The compliance costs associated with running a public company is at times prohibitively high, at least for small firms. The compliance costs include the money spent on the IPO and compliance with the Sarbanes-Oxley Act.
After an IPO, corporations must pay hefty compensation to executives, directors and advisers.
Private ownership is preferred by family-owned companies that wish to keep control within the family. Private companies, however, are disadvantaged by their inability to tap into the public market for financing.
A key difference between public and private firms: The motive with which each is run. Public companies are pressured to consistently churn out growth in profits and sales, as stock performance is tied to these metrics.
Private companies operate with a long-term horizon in mind and are generally under less pressure to show short-term results.
Why Musk May Want A Private Tesla
Musk's longing for a private structure is understandable, given that Tesla is operating in a high-tech industry. Excerpts from the book "Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future" by Ashlee Vance explain the logic of Musk's preference for a private structure.